guyana: country strategy with the idb (2002-2005)

DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

IDB COUNTRY STRATEGY with GUYANA

November 7, 2002

This document was prepared by a team consisting of: Gabriel Castillo, Team Leader, and Iwan Sewberath-Misser (both of RE3/OD6), Robert Kestell (COF/CGY), Carlos Elias (RE3/OD5), and Carla Moore (RE3/OD6). Comments were received from staff of the Functional Divisions and the Country Office in Guyana.

TABLE OF CONTENTS

EXECUTIVE SUMMARY I.

INTRODUCTION....................................................................................................................1

II.

KEY DEVELOPMENT CHALLENGES ................................................................................2 A.

Accelerating and Sustaining Economic Growth. ..........................................................3

1.

2.

B. C. III.

Governance and Public Sector Modernization..............................................................7 Strengthening Social Programs. ....................................................................................8

ASSESSMENT OF STRATEGY AND SUMMARY OF PORTFOLIO ISSUES ................10 A. B. C.

Assessment of Past Strategy........................................................................................10 Portfolio Issues During 1998-2001. ............................................................................10 Issues Affecting Overall Portfolio Performance. ........................................................11

1.

2.

3.

IV.

The Policy Environment. ..........................................................................3 Economic Scenario. ..................................................................................6

Human Resources and Institutional Capacity.........................................11 Procurement............................................................................................12 General Issues.........................................................................................12

BANK OBJECTIVES, STRATEGY AND AGENDA FOR DIALOGUE............................13 A. B.

Bank Objectives. .........................................................................................................13 Areas of Strategic Emphasis. ......................................................................................13

1.

2.

3.

C. D. E. F.

Accelerating Economic Growth. ............................................................14 Public Sector Modernization. .................................................................21 Strengthening Social Programs...............................................................25

The Operational Program. ...........................................................................................28 Coordination with other donors...................................................................................30 Indicators for Program Assessment.............................................................................31 Strategy Implementation Risks and Agenda for Country Dialogue............................32

LIST OF FIGURES IN THE TEXT

Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6

Official Development Assistance in 2000…...……………………………

Real GDP and Investment…………………………………………………

Terms of Trade, Real Effective Exchange Rate, and Exports/GDP Ratio…

External Debt Sustainability. ……………………………………………...

Share of NPV Debt Relief …………………………………………………

Active Portfolio ……………………………………………………………

1 3 3 4 5 10

LIST OF TABLES IN THE TEXT

Table 1 Table 2 Table 3

Macroeconomic Performance. …………………………………………..

Macroeconomic Outlook ……………………….………………………..

Performance of the Bank’s Lending Strategy 1998-2001 ……………….

LIST OF ANNEXES

ANNEX I ANNEX II

Strategy Matrix Table II.1 Loan Programs 2002-05 Table II.2 Technical Cooperation Program (FSO), 2002-03 Table II.3 MIF Program, 2002-03

ANNEX III

Table II.4 Exposure and Credit-Worthiness Indicators Table II.5a Distribution of Pipeline and Assumed Financing by Year and Area of Activity Table II.5b Distribution of Pipeline Resources by Characteristic and Area of Activity IDB Country and Sector Work Program

ANNEX IV ANNEX V

Quantitative Goals of the Poverty Reduction Strategy References

4 6 10

ABBREVIATIONS ASL BNTF CARICOM CDB CFAA CIDA CIPE CGCED CPAR CPE CS CTB DFID D&I EU FDI FSL FSO GASCII GDP GNCB GUYSUCO HIES HIPC IDB IDB-8 IFC IIC IMF ITC MFI MIF MOF MTIT MMA MPW&C NDS NHP NIS OECD PEUs PRI PRGF PSC PSMP SIMAP TC USAID UNDP WB

Agricultural Sector Loan Basic Needs Trust Fund Caribbean Common Market Caribbean Development Bank Country Financial Accountability Assessment (CFAA) Canadian International Development Agency Country Institutional and Policy Evaluation Consultative Group for Caribbean Economic Development Country Procurement Assessment Report (WB) Country Program Evaluation Country Strategy Central Tenders Board Department for International Development (British) Drainage and Irrigation European Union Foreign Direct Investment Financial Sector Loan Fund for Special Operations Guyana Association of Security Company and Intermediary Inc. Gross Domestic Product Guyana National Cooperative Bank Guyana Sugar Company Household Income and Expenditure Survey Heavily Indebted Poor Countries Inter-American Development Bank Report on the Eighth General Increase in the Resources of the Inter-American Development Bank International Finance Corporation Inter-American Investment Corporation International Monetary Fund Information and Communication Technology Multilateral Financial Institution Multilateral Investment Fund Ministry of Finance Ministry of Trade, Industry and Tourism Mahaica Mahaicony Abary Ministry of Works and Communications National Development Strategy National Health Plan National Insurance Scheme Organization for Economic Cooperation and Development Project Execution Units Private Sector Department Poverty Reduction and Growth Facility Private Sector Commission Public Sector Modernization Program Social Impact Amelioration Program Technical Cooperation U.S. Agency for International Development United Nations Development Program World Bank

EXECUTIVE SUMMARY Background

Guyana is a thinly populated country with per capita GDP estimated at US$740 in 2001, the lowest in the Western Hemisphere after Haiti. The country has a total area of 215,000 square kilometers and a population of 747,000, of which 90% is concentrated within a few miles from the coast. Because of a high emigration rate, population growth has been marginal in the last two decades.

The Bank is Guyana’s most important development partner: the largest donor under the original and enhanced Heavily Indebted Poor Countries (HIPC) Initiative, the largest creditor to Guyana with operations spanning most sectors, and the largest provider of technical assistance and policy advice. Bank disbursements from ongoing operations represented 6.7% of GDP in 2001, 14% of public sector expenditure, and 49% of total official development assistance to Guyana. In addition, the Bank has assisted the Government with donor coordination on policy and project matters. The Country Strategy benefited from broad stakeholder consultations on the Poverty Reduction Strategy Paper (PRSP), sector experience, extensive donor coordination, and intensive dialogue with Guyanese authorities. The strategy is intended to cover the period of the current administration, which was elected in March 2001.

Objective

Major Development Challenges

The Bank’s objectives for Guyana are to collaborate with the country to reduce its level of poverty in the medium term, while simultaneously addressing chronic institutional and human resource problems, which must be alleviated in order for the country to achieve sustainable, equitable growth in the long term.

Accelerating and sustaining economic growth. Guyana has pursued sound macroeconomic policies, deepened structural reform, and sought debt sustainability and relief under IMF programs for a decade. In this respect, the poverty surveys revealed a strong relationship between economic growth and the reduction of poverty between 1993 and 1999. However, since the December 1997 elections, the country has endured a battery of exogenous shocks, political turmoil, and the recent increase of violence and criminal activity that combined to undermine economic performance. During this trying period with competing demands for resources, the authorities increased social sector expenditures.

The Government’s most recent macroeconomic and structural reforms were supported by a Poverty Reduction and Growth Facility (PRGF) from November 13, 2000 until its expiration on December 31, 2001. Since then, the Government continued to accelerate the implementation of reforms that had been delayed and negotiated a new PRGF for the 2002-04 period, which was approved by the IMF Board on September 13, 2002.

However, the private sector continues to face a weak enabling environment for trade, investment and business expansion. The specific challenges would require the Government to deepen reforms to improve the trade and investment regime, tax policy and administration, the commercial legal environment and

access to land, financial intermediation, business and sector regulations, promotion strategies, and other governance systems.

While accelerating and sustaining economic growth in order to facilitate durable poverty reduction is the foremost challenge facing the country, it is not sufficient, given other important development challenges facing the country.

A second challenge is to undertake comprehensive public sector modernization. The difficulty of obtaining broad stakeholder participation and consensus on major policy issues, and the recent increase of criminal activity, represent major obstacles to national development and the increase of consumer and investor confidence. The public sector is also constrained by a human resource problem, which reflects in the quality of service delivery, the efficiency of public current and capital expenditures, public financial administration systems, and capacity to undertake reforms. The public sector also continues to “crowd-out” the private sector in the markets for capital and land. These factors also undermine economic performance.

A third challenge is to further strengthen social programs given the current environment characterized by low economic growth and weak institutional capacity. Social programs are fraught with uncertain outcomes and require sustainability of both human and financial resources, yet economic growth alone is not sufficient to reduce poverty. Absolute poverty at the national level declined significantly from 43% in 1993 to 35% in 1999, but the benefits of high growth in that period were uneven as poverty increased in the rural interior. The country has also suffered from high rates of emigration. For these reasons, special attention is warranted to the strengthening of broad-based social programs and poverty targeting. However, Guyana’s overall social sector performance is commendable given the sustained increase of social expenditures during periods of economic duress, the significant reduction of overall poverty, and for its 2002 Human Development Index ranking of 103, which remains above that of other Bank HIPC countries (Bolivia, Honduras and Nicaragua). The Joint Staff Assessment of the Poverty Reduction Strategy Paper also projects that Guyana is likely to achieve four of seven goals in common with the Millennium Objectives.

Strategic Focus and Bank Programs

The Bank’s strategy is to promote growth oriented programs and policies, which if reinforced by the strengthening of governance, security and justice, public sector systems and social programs, will contribute to poverty reduction in Guyana. To implement the strategy, the Bank seeks to help Guyana address its three major development challenges.

In each area, the proposed financial or non-financial activities would be accompanied by policy and institutional reforms. First, in order to accelerate and sustain economic growth, the strategy emphasizes growth-oriented policies and investments. The policy and institutional reforms will focus on the comprehensive improvement of the trade, investment and business environment for private sector development, and an integrated approach to agricultural and ii

rural development, which will unlock the potential contribution to economic growth of these sectors. The policy reforms will be accompanied by investments in productive infrastructure.

Second, this growth-oriented strategy is complemented by the improvement of governance, security and justice, and public sector systems, which seek to redefine the role of government, help remove institutional constraints to stakeholder dialogue and participation, improve public sector capacity and service delivery, increase the efficiency and accountability of public financial and investment systems, and contribute to other public sector objectives.

Third, the strategy is complemented by the strengthening of targeted social programs, including sweeping educational reforms and investments that seek to combat the deleterious effects of decades of emigration, improvement of health and nutrition, and monitoring of social indicators to increase accountability.

Monitoring of the PRSP implementation will take place continuously with the participation of civil society through a Steering Committee. Ongoing or proposed Bank programs will help Guyana achieve some of its Millennium and PRSP Objectives.

To implement this strategy, the Bank proposes an indicative program containing 14 operations for US$244.3 million in the 2002-05 period (Annex II, Table II.5b). The proposed pipeline reflects the concentration of resources in each strategic area: The growth-oriented programs are for information and communications technology, a trade and investment facility, agriculture, a Deep Water Harbor and Port Facility, two road projects, rural roads, and an environmental loan, which account for 60.9% of resources. Most of these projects also support Guyana’s global, regional and domestic integration efforts. Three strategically important programs are proposed to improve governance and public sector performance, which account for 15.9% of resources. The social programs are to strengthen nutrition, the health sector, and social statistics and policy making, which account for 23.2% of resources.

Most programs directly or indirectly advance public sector reform, private sector development, and social objectives.

The strategy also calls for expansion of the Bank’s role in defining a comprehensive, well coordinated and financed, and sustainable Public Policy Agenda (Box 1) designed to strengthen fiscal sustainability, improve public sector accountability, support the efficient use of public and HIPC resources for poverty reduction, and improve the “Rules of the Game” for private sector development. A shift from the baseline to the low lending scenario of US$111.3 million in the 2002-05 period would be triggered by the failure to achieve satisfactory annual progress with the agreed Public Policy Agenda. In this case, the approval of specific infrastructure programs would be delayed until the benchmarks were successfully implemented, while the public sector and social programs would be protected in order to provide continuity of financing and the technical assistance tools required to address the public sector and poverty reduction challenges. A shift from the baseline to the high lending scenario would be triggered by strong progress toward an enabling private iii

sector environment and for private concessions, which may attract additional PRI and IIC financing.

The range of activities contained in the strategy is a reflection of factors that are both external and internal to the Bank. External considerations are that Guyana is a very small country in terms of GDP and population (US$696 million and 775,000 in 2001, respectively) with enormous poverty reduction needs, and that IDA’s use and allocation of concessional resources to Guyana have declined over the last decade and now average about $US10-12 million per year. Among the internal considerations are that the Bank is the major multilateral financial institution operating in the country, and the fact that Guyana has enjoyed significant allocations of FSO in recent years. The financing of operations in the proposed pipeline are contingent upon the future availability of FSO, which in turn will be allocated among eligible countries on the basis of the Country Institutional and Policy Evaluation (CIPE), and progress on the above mentioned Public Policy Agenda.

The number of relatively small operations reflects the country’s small size and low public absorptive capacity in any one area, which in some cases requires diversification within sectors. Until public sector modernization takes hold and addresses institutional capacity constraints on a sustainable, long term basis, the Bank should mitigate this factor by the use of expatriate and external consultants to provide technical assistance, as well as institutional strengthening on a project-by-project basis to strengthen Guyana’s absorptive capacity in the short to medium term. In addition, studies and technical cooperation programs will provide support in the following areas: (i) project preparation; (ii) institutional development and capacity building; and (iii) creation of an enabling environment for private sector development (Annex II, Tables II.2 and II.3).

The Bank’s overall strategy, operational program and performance indicators are summarized in the Strategy Matrix (Annex I).

iv

I.

INTRODUCTION

1.1

Guyana’s general elections took place on March 19, 2001. The People’s Progressive Party/Civic received 53% of the popular vote, which international observers declared free and fair. However, the major opposition party, the People’s National Congress/Reform, challenged the electoral results so the President was sworn in on March 31st amidst civil disturbances. Cabinet was appointed on April 9, 2001. In May 2001, the President and the opposition leader agreed on the following: (i) recognize the President, and the elected Government without prejudice; (ii) expedite Parliamentary approval of constitutional reforms; (iii) expedite the Poverty Reduction Strategy Paper (PRSP), and ensure that E-HIPC resources flow towards poverty reduction, and employment creation. Various bipartisan commissions were established, and these agreements enabled Parliament to reconvene on May 4, 2001 and the approval of the 2001 Budget on July 5, 2001.

1.2

After the political climate stabilized, the IMF led the first consultation mission to Guyana in mid-June, in which the IDB and other IFIs participated. The IMF granted a six-month extension until December 31, 2001 to allow the Government more time to achieve its performance targets under the Second Annual Arrangement of the Poverty Reduction and Growth Facility (PRGF). The Bank participated in a consultative group to finance broad stakeholder consultations for the preparation of the Poverty Reduction Strategy Paper (PRSP), which culminated in a National Conference in October 2001 to review the recommendations. Although without an IMF program since December 31, 2001, the Guyanese authorities completed additional reforms and negotiated a new, three-year PRGF, (which was approved on September 13, 2002). However, the dialogue between the President and the opposition leader was suspended in March 2002 over differences on implementation of agreements reached. The opposition also refused to participate in the Parliamentary debates on the 2002 budget, which was approved by simple majority in Parliament. Since then the political climate has deteriorated, and violence has increased.

1.3

The Bank is Guyana’s most important development partner: the largest donor under the original and enhanced Heavily Indebted Figure 1. Official Developm ent Poor Countries (HIPC) Initiative, the largest Assistance in 2000 creditor with operations spanning most IMF sectors, and the largest provider of technical 8% C ANADA assistance and policy advice. Bank IDB 4% disbursements from ongoing operations 49% UK represented 6.7% of GDP and 14% of public 6% expenditure in 2001, and was the equivalent USA to the official development assistance 10% provided by all other donors combined C DB (Figure 1). The Bank has played a key role 5% IDA EU in assisting the authorities with donor 7% 11% coordination on policy and project matters and will deepen this effort in the future.

1.4

A Special Mission in September 2001 agreed with the authorities to align the new Country Strategy with the final PRSP,1 which was finalized in March 2002. In parallel, OVE fielded a mission in September 2001 to prepare the Country Program Evaluation (CPE). The preparation of the Country Strategy benefited from the wealth of information and synergies generated through the Bank’s participation in stakeholder consultations on the PRSP, donor coordination, the HIPC monitoring since 1996, an internal program evaluation, and IMF consultation missions. Project teams helped define sector strategies and commented on PRSP drafts, most of which are now embedded in the PRSP. II. KEY DEVELOPMENT CHALLENGES

2.1

Guyana is a small, open, low-income economy whose development has been recently held back by external shocks, political problems and the increase of criminal activity.

Beginning in 1988, policy reforms successfully stabilized and liberalized the economy and gave the private sector a wider role. The improved policy framework had highly positive effects from the early 1990s onwards: during 1991-97, real GDP growth averaged 7% p.a., compared to minus 3% p.a. in the 1980s, while inflation was reduced from over 100% in the late 1980s to 4.5% in 1997. Due to the resurgence in economic activity and only marginal population growth, Guyana’s per capita GDP increased to US$740 in 2001, slightly surpassing its previous peak in 1980. While high by regional standards, absolute poverty at the national level declined 19% (from 43% in 1993 to 35% in 1999) and critical poverty declined by 34% (from 29% to 19%).2

2.2

Government policies focus on reducing poverty substantially in the medium term. The PRSP goals are to: (i) reduce the proportion of the population living under the poverty line to 31.4% by 2005; (ii) reduce infant mortality rates to 42 per thousand by 2005; (iii) achieve universal primary education; and (iv) eliminate gender disparity in education by 2004. To achieve these goals, the strategy seeks: (i) broad-based, job-generating economic growth; (ii) environmental protection; (iii) stronger institutions and better governance; (iv) investment in human resources with an emphasis on primary education and health; (v) investment in physical capital with emphasis on better and broader provision of safe water and sanitation services, farm to market roads, drainage and irrigation systems, and housing; (vi) improved safety nets; and (vii) special areas of intervention to redress regional disparities in economic/social conditions. The Joint Staff Assessment, prepared in collaboration with IDB staff, contains a detailed review of the PRSP and Annex IV contains the list of PRSP targets. Underlying these inter-related strategy elements are three major development challenges facing the country, and which provide the basis of the Bank’s assistance strategy for the medium term.

These are: improving growth performance through policy reform and by enhancing productive infrastructure, strengthening development institutions and governance, and protecting vulnerable population groups. Key among these challenges, however, is that of achieving sustained growth, without which the country’s poverty reduction goals will remain unattainable.

1

Other IFIs also agreed to await the full PRSP before undertaking their respective country strategies. The World Bank (IDA) is scheduled to present for Board consideration a new Country Assistance Strategy on September 19, 2002.

2 Poverty data are drawn from the 1993 and 1999 Household and Income and Expenditure Surveys (HIES). Guyana’s growth/critical-poverty elasticity is 1.2, which is slightly below the LAC and world average (Dollar/Kraay, 2002).

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A. 2.3

Accelerating and Sustaining Economic Growth.

The foremost development challenge facing Guyana is to accelerate and sustain economic growth. Since the December 1997 elections, however, real GDP growth stagnated as a result of numerous shocks (Figure 2). The shocks included the El Niño drought followed by flooding; deteriorating export prices for bauxite, gold and timber; the loss of the preferential Other Territories and Countries (OTC) route for rice exports; Euro depreciation that reduced the value of preferential sugar exports; a 66% public sector salary increase triggered by a two-month public service strike; rising petroleum prices; recurring political unrest, and recent increase of violence and crime. The public sector, whose expenditures accounted for 48.3% of GDP in 2001, is very large. Public spending had a strong effect on increasing demand and finally growth in the short term.

For this reason, HIPC-related resources have had a positive effect since 1999 on growth as shown in Figure 2 and also in ameliorating the impact of external shocks, supporting social spending and programs, and attenuating the increase in poverty. Declining growth coupled with political turmoil, violence and crime also reduced private investment to a decade low. Consisting mainly of foreign direct investment attracted to Guyana by its natural resource base (mining, timber) or the privatization of major utilities, private investment is not likely reach the “catch up” rates exhibited in the early 1990s, and remains high in comparison to other countries. However, growth sustainability in the long term rests on the performance of the private sector in seizing the comparative advantages of Guyana. Export performance reflected a decade of terms of trade deterioration, for which adjustment was made more difficult by the sustained appreciation of the real effective exchange rate (Figure 3).

Figure 2. Real GDP and Investment

8.0

50.0

4.0

30.0

2.0 0.0

20.0

(In percent)

6.0 40.0

-2.0 10.0

-4.0

0.0

-6.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

(Index 1990 = 100 or % of GDP)

10.0

60.0

(as a percent of GDP)

Figure 3. Terms of Trade, Real Effective Exchange Rate, and Exports/GDP Ratio 120 110 100 90 80 70 60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Private Investment GDP

1.

2.4

Public Investment GDP w/o HIPC

TOT

REER

X/GDP

The Policy Environment.

In spite of these challenges, the Government pursued sound macroeconomic policies, deepened structural reform, and sought debt sustainability for a decade under IMF programs. Nevertheless, economic stagnation during the 1998-2001 period is reflected in the deterioration of Guyana’s macroeconomic indicators (Table 1). During this period, the public sector fiscal deficit more than doubled despite substantial reforms (improvement of tax administration, adjustment of the customs valuation exchange rate, voluntary separations and completion of privatizations). However, duty exemptions to -3-

2.5

encourage private investment contributed to the decline of revenue. In addition, revenue and contributions from state enterprises decreased in line with economic activity and export prices, while public expenditure increased Table 1. Macroeconomic Performance due to the HIPC-induced social spending and Indicator (% or % of GDP) 95-97 98-01 public sector wage increases (31% in 1999 and Real GDP Growth 6.4 0.33 27% in 2000 granted by an independent Consumer Price Index e.p.

5.6 5.2 30.7 24.2 Arbitration Tribunal). The weak economic Gross National Investment/GDP Private 12.9 10.5 conditions also resulted in contraction of base Public 17.8 13.7 17.4 9.6 money, deterioration of the current account National Savings/GDP Current Account Balance/GDP -13.3 -14.7 balance, and decline in international reserves. In Public Sector Current Balance -1.3 -10.1 2001, the public sector deficit reached 7.0% of Public Sector Balance including grants, -1.3 -4.5 O-HIPC and interim E-HIPC debt relief GDP, public expenditures reached 48.3% of Net External Financing 2.7 4.9 -1.4 -0.4 GDP (social expenditure accounting for 17% of Net Domestic Financing External Debt/GDP 241 180 GDP), and the external current account deficit Domestic Credit Growth 17.3 3.0 18.2 9.7 reached 19.2% of GDP, while private investment Broad Money Official Reserves (in mo. Imports) 4.8 4.4 decreased to a decade low of 7.9% of GDP.

2.6

The Government is still implementing important reforms3 under the PRGF that expired on December 31, 2001 and completed a full Poverty Reduction Strategy Paper in March 2002. The authorities and IMF negotiated a new three-year PRGF, which was approved on September 13, 2002. The new PRGF seeks to further public sector reform (expenditure and wage restraint, comprehensive tax reform, improved budget, audit, procurement, investment and financial management legislation/ systems, and restructuring of the sugar and bauxite sectors and the public pension system); Figure 4. External Debt Sustainability financial sector reform (deposit insurance, 600 legislation, supervision, sale/liquidation 500 of GNCB and Globe Trust, and deeds 400 registry); and PRSP implementation.

After E-HIPC (revised in 2002) Before HIPC assistance

After E-HIPC (estimated in 2000) Fiscal Criteria Ratio

300

3

200 100

14

12

10

08

06

04

02

00

16 20

20

20

20

20

20

20

20

98

0 20

Guyana also qualified for enhanced HIPC debt relief under the fiscal criteria, which means that its debt sustainability is defined as an external debt to central government revenue ratio of less than 250%.4 Figure 4 shows the fiscal ratios in

19

2.7

Civil service reforms (security guards outsourced in January 2001 and implementation of an IDB-funded TC to Design the Public Sector Modernization Program) started in November 2001; financial sector reforms by bringing the Guyana National Cooperative Bank to the point of sale (completed in October 2001 and supported by the fully disbursed Financial Sector Loan), which when sold will bring the financial sector fully under private control; privatization of two state-owned bauxite companies (delayed by the withdrawal of ALCOA, and for which negotiations are ongoing with a Canadian mining company); agriculture sector reforms (rehabilitation of the Guyana Sugar Corporation and reforms of the fully disbursed Agriculture Sector Loan); and procurement reforms. Also, electricity and gasoline tariffs/taxes were increased, and wages were restrained in line with the IMF program.

4 Due to its openness to trade, Guyana’s NPV-of-external-public-and-publicly-guaranteed-debt-to-exports-of-goodsand-net-factor-services ratio was estimated at 180% at end-1996 and at 151% at end-1998. Measured by the normal “export criteria” sustainability targets of 200-220% for the original HIPC Initiative and 150% for the enhanced HIPC Initiative, Guyana would not have qualified for the HIPC Initiatives.

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relation to the target of 250% over time. The upper bound shows the ratio without HIPC relief according to IMF projections at the Decision Point in November 2000, while the lower bound shows the ratio assuming enhanced HIPC debt relief at a completion point in mid-2001, which did not take place. According to more recent projections in April 2002, the middle line shows the revised fiscal ratio through 2006, and a later completion point in 2003. Given the declining ratios over time, Figure 2 suggests that Guyana will become increasingly debt sustainable. However, the ratio portrayed by the middle line suggests that recent progress toward debt sustainability was less than originally expected for the following reasons: (i) lower economic growth (1.8% vs. 4% per year for 20002005) and (ii) tax exemptions, both of which reduce revenue (and affected the ratio’s denominator); as well as (iii) political unrest and (iv) implementation difficulties with envisaged structural reforms, both of which delayed the completion point and the provision of debt relief (and affected the ratio’s numerator). In addition, interim assistance has been delayed due to voluntary implementation under the enhanced HIPC Initiative. At present, only five creditors (the World Bank, IMF, United Kingdom, Canada and France) have provided interim assistance, which together account for only 32% of the debt. If the Bank could start the provision of debt relief, this proportion would increase to 52% of the debt.

2.8

Guyana is expected to reach the completion point in the first half of 2003, which is depicted by the sharp drop toward the 250% target. Guyana would receive debt relief of $329 million in n.p.v. terms. As the single largest creditor under HIPC (Figure 5), the Bank’s share of debt relief is US$64 million in NPV terms (or US$97 million in Figure 5. Share of NPV Debt Relief nominal terms). At the completion point, Guyana would become debt sustainable US Other (21) 2.5% IDB sooner, rather than in 2009 or later without 13.7% CDB 19.7% debt relief. Debt relief under the combined 3.0% HIPC Initiatives is expected to reduce Guyana’s external debt by more than half of the amount outstanding before relief. EU 3.2% Maintaining debt sustainability will T&T require private sector led growth, which 16.8% IMF WB UK increases revenue without raising the tax 12.4% CMCF 11.9% 7.4% 9.4% burden. A full Debt Sustainability Analysis will be undertaken by the IMF prior to the completion point.

2.9

The sustainability of the public sector and current account balances, and of external debt, depend on the rationalization of public expenditure, supportive monetary and exchange rate policies, and ultimately the creation of enabling conditions to accelerate and sustain private sector growth. The provision of debt relief under the enhanced HIPC Initiative would help mitigate the impact of external shocks, support social expenditures and attenuate the increase in poverty.

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2.

Economic Scenario.

2.10

This section examines the most likely macroeconomic trends for the 2002-05 period and related risks. The baseline scenario summarizes the PRSP’s framework under the new PRGF, which is predicated on a gradual recovery of exports and investment, a medium term wage policy that caps public sector wage increases to inflation and productivity growth, and the achievement of the completion point under the enhanced HIPC Initiative in 2003. Comprehensive reform of tax policy and administration would be undertaken, and public spending and investments would be prioritized to enhance efficiency. Fiscal policies seek to increase public sector savings and reduce domestic indebtedness.

2.11

In this context, real GDP Table 2: Macroeconomic Outlook growth could gradually Baseline accelerate in the 2002-05 2002period to an average of 2.7% 2001 2002 2003 2004 2005 2005 Real GDP growth (%) 1.4 1.8 2.7 3.0 3.4 2.7 (Table 2). The public sector 2.7 4.3 4.5 3.5 2.8 3.8 deficit after grants Consumer price index (%) Real exchange rate (LC/US$, 1.022 1.082 1.112 1.119 1.119 1.108 temporarily increases to an 2000=1.0) average of 9.4% of GDP. In Terms of trade (2000=1.0) 1.032 1.029 1.032 1.038 1.033 1.033 large part, the increase of Public Sector (% GDP) 33.1 32.4 35.9 36.6 36.7 35.4 expenditure is related to Total current revenues 34.5 34.1 34.8 33.8 34.4 34.3 public investment for the Total current expenditures 14.0 14.0 15.9 20.6 16.1 16.7 rehabilitation of the sugar Total capital expenditures industry, which also Public sector, current deficit -15.3 -15.7 -14.7 -17.8 -13.7 -15.5 temporarily increases the Grants, O-HIPC and E-HIPC 8.3 8.2 5.3 5.5 5.4 6.1 current account deficit to Public sector deficit after grants -7.0 -7.5 -9.4 -12.2 -8.3 -9.4 (incl.O-HIPC & E-HIPC) 20.8% of GDP due to the National Accounts (% GDP) purchase of imported Investment 21.9 22.0 25.0 31.5 27.5 26.5 machinery and equipment. Public 14.0 14.0 15.9 20.6 16.1 16.7 Monetary policy maintains Private 7.9 8.0 9.1 10.9 11.4 9.9 average inflation at 3.8%, Savings 3.1 1.8 4.7 8.1 8.3 5.7 safeguards the Bank of Foreign Savings (CA deficit) 18.8 20.2 20.3 23.4 19.2 20.8 Guyana’s international Money Growth (%) 8.9 8.8 6.7 6.0 5.9 6.9 reserve position, and retires External Debt (US$ million NPV ) 839 552 603 633 658 643 domestic debt to “crowd-in” External Debt Service (US $ million) 45 39 43 45 46 43 private sector credit, and Gross Reserves (months of imports) 4.3 4.0 3.8 3.8 3.8 3.85 reduces interest rates. The floating system yields nominal depreciation, which translates into real effective exchange rate depreciation. Private investment increases to an average of 9.9% of GDP, which represents a modest recovery from its recent low of 7.9% in 2001, but is nonetheless below the average of 13% recorded in times of robust growth and political stability.

2.12

This moderate outlook for the economy is tempered by two risks. A potential risk is associated with larger than expected public sector wage increases. Following the 66% wage increases awarded by an independent Arbitration Tribunal in 1999 and 2000, the public service unions demanded additional wage increases of 35% in 2001 and 30% in 2002, while the Government unilaterally increased wages by only 5.5% for 2001.

Significantly higher wage increases, if successful, could trigger inflation and fiscal -6-

deficits, requiring monetary and fiscal austerity, and curtailment of PRSP programs. debt relief. This risk highlights the urgent need to forge consensus on a sustainable medium term wage policy to preempt the yearly confrontations, as recommended by the Arbitration Tribunal in 1999. Indeed, the PRSP suggested quarterly Government-union meetings to improve the industrial relations climate [PRSP, p. 43]. Another risk is associated with further terms of trade deterioration, which would deteriorate the external current account balance, reduce real GDP growth and generate inflation. The decline of export prices would further reduce private investment and require monetary intervention.

2.13

In sum, the medium-term outlook supports a moderate acceleration of economic growth.

However, potential risks could influence macroeconomic outcomes. Growth – the key macroeconomic variable related to poverty reduction – is not greatly affected in the near term by the risks because it is assumed that the enhanced HIPC Initiative is approved and implemented. The effect of lower debt payments on domestic consumption, via higher domestic public spending, is therefore about the same. The negative outcomes would be reflected on other key macroeconomic variables such as the fiscal deficit and the external current account balance, which in turn could be mitigated by (i) prudent fiscal, monetary and exchange rate policies; (ii) the deepening structural reforms in the main productive sectors (trade, investment and business environment, agriculture and bauxite); (iii) investments in basic productive infrastructure; and (iv) balance of payments support.

B.

Governance and Public Sector Modernization.

2.14

Another major challenge is to modernize Guyana’s public sector by improving governance, enhancing citizen security and justice, and initiating public sector modernization reforms. The political tensions that emerged between the December 1997 and March 2001 elections have severely hindered the development process in Guyana, and degraded the quality of life for the Guyanese population. The recent increase of crime and violence also reduced consumer and investor confidence. As the next election will take place in 2006, there is a window of opportunity to improve governance, stakeholder dialogue and participation, and citizen security and justice.

2.15

A related challenge is the need for comprehensive public sector modernization. In the area of public sector financial administration, the World Bank completed a Country Procurement Assessment Report (CPAR), a Country Financial Accountability Assessment (CFAA), and an updated Public Expenditure Review in 2002, which suggest major fiscal, financial and fiduciary problems, outdated legislation and regulations, and obsolete systems, which weaken public sector performance. In addition, the “Rules of the Game” for the private sector need to be clarified to ensure an enabling environment, an even playing field and to enhance potential growth.5 In the area of public administration, low pay, better opportunities in the private sector and abroad, and privatization combined to reduce the size, quality and composition of public employment. Between 1985 and 2001, employment declined at an average rate of 4% per year in the public sector, which was skewed toward technical and professional positions and adversely affected

5

“The systems and processes in place are not perceived to be functioning transparently; and the government is not seen to be predictable or equitable in following its own rules.” In addition, “there is the perception that it is difficult to do business in Guyana. These difficulties are related to: (i) paying taxes; (ii) clearing goods through customs; (iii) buying public land; (iv) obtaining and renewing licenses; and (iv) public procurement.” CFAA 2002.

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efficiency. Compensation gains over the last decade have not been selective or sustainable, and thus insufficient to arrest the rate of attrition of qualified personnel. For these reasons, comprehensive public sector modernization is key to improving governance, financial administration and accountability, efficiency of expenditures and service delivery, the environment for private sector development, and implementation of social programs to support the PRSP’s poverty reduction goals.

C.

Strengthening Social Programs.

2.16

Strengthening social programs is a major challenge in an environment characterized by low economic growth and weak institutional capacity. Social programs are fraught with uncertain outcomes and require sustainability of both human and financial resources. While overall poverty declined significantly, the benefits of high growth in the 1990s were uneven and poverty increased in the rural interior. For this reason, further strengthening of social programs and poverty targeting are warranted.

2.17

This section briefly characterizes poverty in Guyana based on the poverty surveys of 1993 and 1999. The largest decline in poverty was in Georgetown, from 29% to 16%, with smaller declines in other urban areas (from 23% to 15%) and the rural coastal region (from 45% to 37%). The poverty gap, a measure of how far on average the poor are below the poverty line, followed the same trend as the headcount. The national poverty gap declined from 16% to 13% during the 1993-99 period, with declines in all main regions except for the rural interior. Poverty in Guyana is predominantly a rural problem, with the coast and interior accounting for 86% of the poor living in Guyana in 1999. In particular, the rural interior, already the poorest area in 1993, became even worse off by 1999, as absolute poverty rose from 79% to 92%. Amerindians represent less than 7% of the population but account for 17% of the poor because they live in the geographically isolated and inaccessible rural interior. The provision of services and infrastructure is costly and participation in the mainstream economy is difficult.

However, significant pockets of urban poverty also exist in squatter settlements, which contain 20% of Georgetown’s population. Afro-Guyanese are least represented among the poor and tend to live in urban areas.

2.18

The characteristics of poor households are similar to those found in other countries in the region. Poor families are larger and have significantly higher dependency ratios than the non-poor. The poor tend to use pit latrines (82% versus 54% for non-poor), and have less access to piped water (36% versus 70%) and electricity (39% versus 73%) due to substandard housing and infrastructure. Heads of poor households are more likely to engage in manual labor (45% versus 34%), and have less schooling than non-poor heads of household; only 14% have gone beyond primary school, as opposed to 36% of the non-poor. The education gap between rich and poor also manifests itself among the younger generation. Although primary school enrollment is universal, the enrollment gap between poor and non-poor children is 12% at age 14, but increases to 32% by age 16.

Guyana has a significant portion of female-headed households concentrated in urban areas. However, female headship is not a proxy for poverty. The distribution of femaleheaded households across income groups is similar to that of male-headed ones, and the poverty rate (29%) is similar to their share in the population (27%). Female-headed -8-

households tend to be more dependent on transfers, remittances and other non-labor income, which are out of their immediate control, and thus are a source of vulnerability.

2.19

Poverty in Guyana is also associated with high levels of malnutrition. In 1993, it was estimated that over one third of the children under five years old in the first quintile suffered from mild to severe malnutrition. The incidence of malnutrition is low in the first months of life, but increases sharply in the age group 6-11 months (measured by weight-for-age), as a result of the low incidence and short duration of exclusive breastfeeding and inadequate weaning practices. Child malnutrition is strongly correlated with a low level of mother’s education and lack of access to piped water, characteristics that are prevalent among poor households.

2.20

Guyana cannot develop without adequate human resources. Guyana was also found to have experienced the highest emigration in a sample of 61 developing countries, with more than 70% of migrants having reported some tertiary education (Carrington and Detriache, 1998). The IMF study used U.S. and OECD immigration data, but CARICOM countries also attracted Guyanese due to labor mobility for professionals with university degrees. Although the study provides only a “snapshot” and does not shed light on emigration patterns over time, recent attention has focused on the continued emigration of trained teachers to Botswana and New York City. Guyana’s cumulative emigration has probably been influenced by many factors: (i) lingering political tension; (ii) lack of economic opportunities occasioned by macroeconomic instability before the 1990s and recent stagnation; (iii) low real and relative wages in the public sector; (iv) frustration with the slow pace of improvement of social services (education, health and water) and productive infrastructure (roads, bridges, electricity, and telecommunications); (v) the pervasive weakness of public institutional arrangements; (vi) the pull factor from earlier waves of emigration; and (vii) more recently due to the increase of violence and crime.

This emigration reduced the supply of skilled and professional workers in both the public and private sectors. Rebuilding Guyana’s human resource base will require a sustained commitment to improving the educational system at all levels, complemented by broadbased social programs to reduce poverty and the incentive for emigration. Strengthening social programs entails increased access and improved delivery of social services and infrastructure, such as health, nutrition, water, low-income housing, urban services, and targeted intervention programs in areas where poverty remains high. The high incidence of poverty in rural interior also suggests the need for growth-oriented programs focused on integrated agriculture and rural development.

2.21

Overall, Guyana’s performance in the social sectors is commendable, and is reflected in the increased social expenditures, the significant reduction in overall poverty, and for attaining a 2002 Human Development Index ranking of 103, which remains above that of other HIPC countries that are members of the Bank. Simultaneous progress to address the three development challenges delineated above are critical if Guyana is to continue making permanent in-roads into reducing poverty.

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III. ASSESSMENT OF STRATEGY AND SUMMARY OF PORTFOLIO ISSUES A.

Assessment of Past Strategy.

3.1

The Bank’s strategy for Guyana, embodied in the Country Paper of 1998, sought to address Guyana’s “Major Development Challenges” by supporting a macroeconomic framework for sustained growth, overcoming the external debt overhang, undertaking public sector reform, improving the enabling environment for private sector development, improving delivery of social services and reducing poverty, maintaining and expanding productive infrastructure, and safeguarding the environment. The country’s performance was mixed in most strategic areas. Implementation was most satisfactory for macroeconomic and structural policy reforms, and was least satisfactory in areas that relied intensively on public institutions and human resource capabilities.

3.2

The Bank approved loans for US$157.9 million and Table 3. Performance of the Bank's disbursed US$154.1 million, which were 16.9% and Lending Strategy 1998-2001 Deviation: 31.5% below the base-lending scenario (Table 3) in Period Actual vs.

Scenario Total the 1998-2001 period. Approvals performed better Scenario (%) than disbursement as the former can be impacted Approvals (US$ million) more directly by Bank support for project preparation, Actual 157.9 0.0 while the latter is hindered by more complex Low Case 135.0 16.9 problems of the execution capacity of public entities.

Base Case 190.0 -16.9 Performance of the Bank’s lending strategy closely Disbursements (US$ million) resembled the low scenario, which was predicated on Actual 154.1 0.0 “delays in the implementation of both public sector Low Case 209.3 -26.4 programs, which may further deteriorate public Base Case 224.8 -31.5 absorptive capacity.” Against the backdrop of economic deterioration and political tension, public sector reforms were not implemented and agricultural reforms advanced too slowly for the Bank to justify major investments.

The sectors endured the most difficult years in a decade with marginal policy, institutional or investment support. The public sector and agricultural programs envisaged for the last programming cycle remain key priorities for the success of the PRSP and economic growth, and are thus carried over in the new strategy.

The original value of the current portfolio of 15 approved operations in Guyana as of March 2002 is US$325.6 million with an undisbursed balance of US$195.2, of which 4 operations for US$100.2 million are awaiting eligibility. In the initial years of the Progressive People’s Party/Civic Administration (1992-94), delays were encountered by the need to redesign various projects. Thereafter, the rate of loan disbursements to cumulative approvals (Figure 6) increased steadily to a peak in 1996, but then suffered setbacks due to low -10-

Figure 6. Active Portfolio Project loans (approved pre- and post-1995) and All loans incl. sector 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

3.3

Portfolio Issues During 1998-2001.

Disbursements/Cum. Approvals

B.

Pre-1995 PL All Loans incl. sector loans

Post-1995 PL

institutional performance, socio-political tension and the recessions between the 1997 and 2001 elections. The Country Office and the Ministry of Finance initiated monthly portfolio reviews, which turned around the overall portfolio in 2000 and yielded record implementation rates for loans approved before 1995. By the first half of 2002, the remaining balances of 5 of 15 loans (i.e the GS&WC Water, the Main Road Rehabilitation, SIMAP II, the Primary Education, and the Agriculture Hybrid loans) were disbursed. A 1997 loan is currently the oldest operation in the portfolio. The rate of disbursement to approvals of the remaining projects is low, albeit increasing. The loan portfolio reflects satisfactory implementation progress and the expectation for the achievement of development objectives is good. Also, the first tranche disbursement of the Air Transport Loan is expected in 2002.

C. 3.4

Issues Affecting Overall Portfolio Performance.

“Implementation has been plagued with problems of extremely weak institutional capacity in the Public Sector, poor performance of local contractors and suppliers and difficulties in the local procurement process. PEUs while speeding up implementation create their own problems because of inequities of salaries, brain drain, lack of sustainability and detracting from institution building in executing ministries. Yet implementation is within the average for the Bank, a remarkable achievement given the institutional difficulties in the country. Much of this is due to the country office and the responsible division in the Bank for its work in addressing implementation problems” [CPE, p. 53]. The authorities ongoing commitment to improve project cycle management, participate in the monthly portfolio review meetings, and actions taken to accelerate portfolio implementation should also be commended. Further, “the Bank should deepen its institutional analysis and broaden its scope on execution. It should explore using other delivery vehicles such as NGOs and private sector firms. It needs to continue in its efforts of institutional strengthening of government ministries and agencies and learn from attempts that have or have not been successful.” [CPE Recommendation 10, p. 50]. In light of the above, this section highlights key issues and responses affecting the portfolio.

1.

3.5

Human Resources and Institutional Capacity.

The public sector institutions responsible for project cycle management lack adequate human resources (i.e. compensation, emigration and training issues) and systems, which are compounded by a slow and centralized decision-making process. It is difficult even to find qualified personnel to staff project execution units and provide substantive support to line Ministries. This situation constrains the execution of the Bank’s portfolio, and is reflected in the slow compliance with contractual conditions and the need for extensions of project execution and disbursement deadlines. A Bank assessment of the Ministry of Works and related PEUs revealed that PEUs operated independently and with little oversight, resulting in inefficiencies, duplication and high costs. The Bank further supported the merging of these PEUs into a single Works Services Group (WSG) under an integrated incentive framework (salaries). The WSG may eventually be transformed into a “Works Authority” and form the core of the Ministry. If successful, the experience could be transferred to education and other sectors of Bank activity. The TC for the Design of the Public Sector Modernization Program will also address some of these issues in the broader public service. Further strengthening of project cycle -11-

management, integration of PEUs in the same sectors, and dialogue on the intensive use of external consultants are warranted.

2.

Procurement.

3.6

The World Bank’s Country Procurement Assessment Report (CPAR) of 2002 provides a comprehensive review of public sector procurement of goods and services and works in Guyana. Until recently, procurement was governed by obsolete laws and regulations which had been last revised in the 1950s. The Central Tenders Board procedures were complex, lengthy, and conducted with minimum staff who utilized outdated manual record keeping. Procurement problems were exacerbated by unsecured storage of tender records and documentation. Constitutional amendments in 2000 required new procurement and tender legislation. In June 2002, Parliament approved a new Procurement and Tender Bill, which seeks to provide the regulation of the procurement of goods and services and the execution of works, promote competition among suppliers and contractors and promote fairness and transparency. The new legislation highlights “the fostering and encouraging participation in procurement proceedings by suppliers and contractors, especially where appropriate, participation by suppliers and contractors regardless of nationality, thereby promoting international trade”. This would ensure sound competition among bidders (both local and international). The new legislation also prohibits the splitting of contracts by the procuring agency, without the approval of the Procurement Board. Implementation of the newly amended legislation, and the strengthening of procurement systems and entities are urgent priorities. Technical assistance for implementation is expected under the World Bank’s PSTAC.

3.7

In the design of new projects, the Bank and the GoG have been experimenting with lump sum contracts to achieve cost efficiencies and minimize project delays. In order to increase the capacity of the local contracting industry, the Bank has offered assistance to assess the industry and promote joint ventures between international and local firms. The transfer of knowledge and management expertise would gradually increase the capacity of the local contractors, which would over time enable them to compete for larger and more complicated works. The Bank should continue the dialogue on how to engage the local contracting industry more aggressively in the procurement of goods and services.

3.

3.8

General Issues.

Project dimensioning also requires special attention to minimize costs and increase the efficiency of public investment, and because of the limited public sector absorptive capacity. To reduce potential delays, technical assistance financed by the C&D Action Plan or project preparation facility could be used to accelerate compliance with effectiveness conditions, and to align project startup activities with the annual budget exercise in order to ensure the timely availability of adequate counterpart.

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IV. BANK OBJECTIVES, STRATEGY AND AGENDA FOR DIALOGUE A. 4.1

Bank Objectives.

The Bank’s objectives for Guyana are to collaborate with the country to reduce its level of poverty in the medium term, while simultaneously addressing chronic institutional and human resource problems that must be alleviated in order for the country to achieve sustainable, equitable growth in the long term.

B.

Areas of Strategic Emphasis.

4.2

The Bank’s strategy seeks to achieve the above-mentioned objective by providing selective assistance in the three areas of development challenges confronting the country: achieving sustainable economic growth, improving governance and public sector efficiency, and strengthening social programs. The strategy calls for a package of policy and institutional reforms and investment projects, bringing to bear both financial and non-financial instruments available to the Bank. The strategy assumes that Guyana implements its PRSP under the new PRGF for the 2002-05 period, and reaches the enhanced HIPC Initiative completion point in 2003.

4.3

Because of its importance for poverty reduction, the strategy concentrates program resources on fostering growth-oriented policies and investments in productive infrastructure. The policy dialogue will focus on facilitation of the trade, investment and business environment, and an integrated approach to agricultural and rural development.

Policy and institutional reforms are required to unlock the potential contribution of these sectors to economic growth. Secondly, the strategy supports the improvement of governance and public sector modernization in order to redefine the role of government.

As IMF and WB support is diffused over many areas in seeking the broad implementation of the PRSP, the Bank is best positioned among IFIs/donors to play a key role in assisting in the development of a Public Policy Agenda and in monitoring progress with reforms that are critical for development. Finally, the strategy reconfirms the Bank’s commitment to the strengthening of social programs and targeted poverty reduction to protect vulnerable groups. In this area, the strategy proposes to redouble efforts on educational reform to combat the deleterious effects of emigration. Until comprehensive public service reforms are initiated, the Bank should continue to provide financing for institutional strengthening on a project-by-project basis, and conduct policy dialogue on the use of expatriate and foreign consultants.

4.4

The range of activities contained in the strategy is a reflection of factors that are both external and internal to the Bank. External considerations are that Guyana is a very small country in terms of GDP and population (US$696 million and 775,000 in 2001, respectively) with enormous poverty reduction needs, and decreased IDA lending and allocations.6 Among the internal considerations, the Bank is the major MFI and the country has enjoyed relatively large FSO allocations. The number of relatively small

6

No significant IDA loans were made during the IDA-12 period. However, the World Bank is proposing an increased allocation of US$45 million over 3 years to support implementation of the PRSP.

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operations reflects the country’s small size, low absorptive capacity in any given sector, and the estimated cost to address critical needs. Until public sector modernization takes hold and addresses institutional capacity constraints on a sustainable, long term basis, the Bank should mitigate this factor by the use of expatriate and external consultants to provide technical assistance, as well as institutional strengthening on a project-by-project basis to strengthen Guyana’s absorptive capacity in the short to medium term. In addition, studies and technical cooperation programs will provide support in the following areas: (i) project preparation; (ii) institutional development and capacity building; and (iii) creation of an enabling environment for private sector development.

4.5

“The Bank should continue its course of action in the next Country Paper. The sectors selected for support have been important ones for the country and results were achieved in agriculture, water and roads and at least begun in electricity. The Bank has developed a niche and should continue to reinforce its efforts where it has experience and not attempt to spread the scarce FSO resources across too wide a spectrum.” [CPE Recommendation 1, p. 53]. In addition, “The further integration of poverty issues into the sectors where it plans to implement its loan portfolio provides the opportunity to develop these instruments.” [CPE Recommendation 8, p. 54]. In these respects, the strategy has aligned the proposed pipeline with the PRSP priorities in major thematic areas, and provides substantial continuity to past Bank endeavors. However, some diversification into new areas (particularly private sector development and public sector modernization) is warranted to address the three major development challenges still facing Guyana.

1.

4.6

Accelerating Economic Growth.

Accelerating economic growth to sustainable levels is the centerpiece of the Bank’s strategy for Guyana. It is the principal instrument for poverty reduction and is required to ensure fiscal, balance of payments and debt sustainability in the medium term. The Bank’s strategy will support growth-oriented programs to improve the enabling environment for private sector development, and to expand access to productive infrastructure, but with due regard to the imperatives for environmental preservation and enhancement. The strategy responds to the suggestion “the Bank needs to make a major effort to assist in finding solutions to persistent private sector challenges. With some success in MIF TC but no other major private sector lending it needs to assess where it can support private sector development in the country that will help achieve sustainable development objectives and design appropriate operations for the Private Sector Department and IIC financing” [CPE Recommendation 9, p. 54]. a)

4.7

Improving the enabling environment for the private sector.

A competitive business and corporate sector is built on the foundation of strong property rights, ease of company formation, good corporate governance, the availability of flexible collateral mechanisms to support the availability of credit, and reliable insolvency systems to minimize lender risk and encourage the rehabilitation of viable firms in financial difficulty. However, Guyana’s private sector is small, fragile and in the midst of stagnation. Policy reforms are urgently needed to: reduce transaction cost; promote trade, investment and competitiveness; and foster private sector participation, opportunities and diversification, while ensuring the sustainable use of natural resources.

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4.8

Guyana’s main productive base continues to erode, remains vulnerable to commodity prices, and will continue to suffer setbacks with the loss of preferential markets. Between 1992 and 2001, merchandise exports decreased from 99.6% to 70.7% of GDP, while some diversification took place given that traditional exports (sugar, rice, bauxite and gold) decreased from 80% to 69% of export revenues. Having facilitated the high growth rates achieved in the 1991-97 period, private investment also decreased to a decade low of 7.9% of GDP in 2001. Because of the very small internal market, the country’s viability depends on further developing both traditional and nontraditional exports.7 Guyana also faces significant external challenges and needs to adjust quickly to a competitive global trading environment.8 The country will also need to participate in, and negotiate effectively through, the Caribbean Regional Negotiating Machinery, which is a major challenge for a small country with limited public resources.9 The PRSP seeks to strengthen the trade and investment environment through legislation, new policies and strengthening of the investment promotion agency. However, the Ministry of Trade and Go-Invest are under-staffed, have limited capacity to represent private interests abroad, and have not attracted technical assistance in a decade. Guyana will also have to compete vigorously for foreign direct investment as international businesses reevaluate their production plans and locations to serve a single hemispheric market. However, a recent WB report suggests the urgent need to improve the following: the tax regime, access to the mostly government owned land, the judicial system for commercial matters, and the business climate in order to make Guyana a more attractive destination for investment.

4.9

Any strategy to support Guyana’s economic development must address these daunting challenges and offer support in all areas related to export and investment performance.

Higher export levels and greater inflows of FDI will foster economic development, and reduce the country’s external current account balance and reliance on foreign debt. In April 2002, the Country Office hosted a well-received Private Sector Conference, where the Regional Department, PRI and IIC made presentations of the available instruments to support private sector development. As a result, the Government requested a Trade Facility Loan (2003) and a complementary MIF program to Strengthen the Trade, Investment and Business Environment (2003). These programs would focus on institutional and policy reforms, export and investment promotion, improving access to

7

The Government is planning to rehabilitate the state-owned sugar company, and is engaged in negotiations for the privatization of the loss-making bauxite companies. Guyana is developing agro-based exports (shrimp, aquaculture and nontraditional crops), value added manufacturing exports (furniture), and service exports (eco-tourism and ICT).

8 First, its preferences are already being eroded by trade liberalization at the multilateral level resulting in intense competition. Second, the very notion of preferential trading arrangements is being challenged in multilateral fora – witness the long battle in the WTO about whether or not to grant the EU a waiver to continue its Lomé preferences until 2008. Third, Guyana is participating in the negotiations for a Free Trade Area of the Americas (FTAA), will begin talks for a reciprocal trade arrangement with the EU in mid-2002, and must face the prospects of further multilateral trade liberalization resulting from negotiations to be launched in 2003 following the agreements reached in Doha. Guyana is also committed to the consolidation of the Caribbean Single Market and Economy, which will entail the free movement of goods, services, capital and skilled labor.

9 Each country needs to participate actively in the negotiating machinery to ensure that its national priorities are duly reflected in the final agreements. This requires a technically, financially and institutionally strong Ministry of Trade.

Guyana will also have to implement the resulting agreements to avoid costly trade disputes. Freer trade will also entail economic adjustment in the short term. Guyanese producers will face much greater competition both at home and in their export markets. Fiscal revenue (part of which is derived from import tariffs) will be affected at a time when the public budget faces growing demands to support adjustment.

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foreign markets, diagnostic studies, strengthening of customs administration, participation in CARICOM and other integration initiatives, training of technical staff and negotiators, and information systems. The loan is subject to “fast track� approval, and the MIF program would provide complementary financing.

4.10

Another major obstacle for private sector development in Guyana is the weakness of the legal regime. In particular, the financial market is impaired by the inefficient legal infrastructure causing delays in the realization of collateral and inability to investigate, prosecute and speedily resolve commercial disputes (the backlog is 18 months). The ineffective court system inhibits prudent commercial lending and investment. An ineffective system of business laws (including corporate, bankruptcy, contract, consumer protection and private property laws) that is not consistently enforced and does not provide a fair mechanism for resolution of disputes can also contribute to the destabilization of the financial system. Significant investment will only materialize if legislation and contracts can be enforced, and business practices, regulations and incentives are clear and predictable. The Bank initiated a Financial Sector Study in August 2002, which will assess the need for additional reforms, constraints to private sector development, and a comprehensive approach to technical assistance requirements.

In addition, the Establishment of a Commercial Court TC (2003) or alternative dispute resolution mechanism has been identified to reduce uncertainty and cost, and increase specialization within the legal system. Similarly, the Establishment of a Credit Bureau TC (2003) could reduce credit risk and facilitate financial intermediation. A MIF TC (ATN/SF-6671GY) to strengthen the Deeds Registry started in 2002, and seeks to accelerate the distribution of land titles for agriculture and low-income housing.

4.11

The 1990s was a period of significant financial sector reforms, supported in part by the Financial Sector Loan whose final disbursement occurred in late 2001.10 The Financial Institution Act provided an impetus for competition and changed the business environment and modus operandi of financial institutions domiciled in Guyana. However, accounting and financial disclosure standards still need improvement and standardization.

The provisions for problem bank resolution are without clear criteria and time limits for corrective action, and no provision mandates the supervision of activities of other deposit taking institutions established under other laws (the Building Society and credit unions) whose operations may be significant enough to impact the safety and soundness of the financial system. Guyana does not have a deposit insurance scheme in place, but there may exist an implicit obligation for the Government to honor the payment of deposits of failed institutions. The TC to Strengthen Prudential Supervision (ATN/SF-7597-GY) will improve accounting, loan evaluation, on- and off-site monitoring, bank risk management, and dealing with problem institutions to comply with Basel Core Principles. The Financial Sector Study, together with ongoing assistance from CARTAC, will determine the need for further reforms and amendment of the Financial Institutions Act.

10

Reform included the liberalization of interest rates with the Interest Rates Act (No. 15 of 1989); of the exchange rate with the replacement of the Exchange Control Act (Cap: 86:01) with that of the Dealers in Foreign Currency (Licensing) Act (No. 19 of 1898) and the Foreign Exchange Provisions Act (No. 8 of 1966); the Bank of Guyana Act (No. 19 of 1998) which replaced the Bank of Guyana Act of 1995; the replacement of the Banking Act of the Laws of Guyana with the Financial Institutions Act 1995. The latter legislation empowered the Bank of Guyana with the ability to exercise greater supervision and regulation of financial institutions engaged in financial intermediation.

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4.12

In other areas, further clarification is required of the ownership structure and relations between financial institutions and insurance companies, pension funds, local commercial/industrial entities and overseas banks. The Association of Securities Company & Intermediary Inc. was established with DFID support to channel resources into companies from more risk-taking entrepreneurs, while reducing the pressure on the banking sector. As Guyana has experienced high emigration rates, the proposed MIF Remittances TC (2003) would support the reduction of transactions costs, increased competition, channel investment opportunities for migrant capital, and enhance this contribution toward poverty reduction. Finally, a proposed MIF TC to develop a Framework for Eco-Tourism Development (2002/03) would support the PRSP’s ecotourism and diversification strategy, as well as economic opportunities for Amerindians, who represent less than 7% of the population but account for 17% of the poor. b)

Expanding productive infrastructure.

4.13

Agriculture and Rural Development. Guyana’s future economic growth and poverty reduction depend heavily on agriculture and rural development. Agriculture accounts for 33 percent of GDP and 37 percent of export earnings, and rural areas account for more than 80 percent of the poor. Increased productivity and exports must rely on sugar, rice, forestry and fisheries, as well as nontraditional products (fruits, vegetables, arts and crafts). Effective management of the complex water-control infrastructure is essential for drainage, flood protection, prevention of water-borne diseases and the most common natural disasters. The sector’s constraints are well documented.

4.14

The PRSP calls for increased productivity before European preferences expire, and to adapt to deteriorating terms of trade, increasing competitive pressures, and the new, more limited, preferential arrangements. Rehabilitation plans for the sugar industry are well advanced with WB support. The PRSP addresses the need to modernize the rice industry, though the Strategy does not provide specifics, including the appropriate role of the Guyana Rice Development Board. The PRSP also addresses land-tenure issues but without sufficiently specific objectives. In particular, the political, financial and technical constraints that limit surveying should be lifted, and the strengthening of the Deeds Registry expedited to provide for an efficient system to register real property and protect property rights. In the critical area of drainage and irrigation, the PRSP emphasizes the expansion of schemes. However, taking into account the complex and ineffective institutional setup in the Regions, sustainable institutional arrangements (i.e. farmer control, operation, fee collection for management and maintenance) should be in place first to justify new public investments. In particular, drainage and irrigation legislation should be passed, and farmer-controlled solutions sought. In other areas, programs to promote nontraditional and value added exports should be strengthened.

4.15

Over the last two and a half decades, the Bank’s approach to agriculture in Guyana has been to finance basic infrastructure, inputs and technical assistance in excess of US$200 million, and its impact on agricultural growth in the early 1990s is well documented in the CPE. The experience suggests that: (i) private participation can be successful if policy changes are implemented quickly and with full government support; (ii) addressing one sub-sector or issue at a time (such as irrigation or marketing) is not sufficient to alleviate constraints to growth and equity; and (iii) the Government must -17-

demonstrate commitment to modernize institutions and eliminate remaining costly and ineffective interventions. Indeed, “the Bank should retain its participation in agriculture, reinforcing its past adjustment lending with more specific investment projects as well as economic and sector studies to address these issues of competitiveness and increased productivity” [CPE Recommendation 5, p. 54].

4.16

The Bank will support a strategy for integrated agricultural and rural development based on institutional modernization, and investments in a coherent sequence that are guided by policy dialogue and benchmarks (see Strategy Matrix) to ensure the timely execution of physical works. In this context, the Bank proposes an Agricultural Support Services Program (2003) with a central focus on land regularization and institutional development in D&I with farmers’ participation; rehabilitation of integrated water control infrastructure; and policy reforms to minimize the Government’s role in D&I rehabilitation and maintenance, technical services, grading of rice export and seed services. The agricultural strategy should be complemented by the above-mentioned trade and investment reforms, and investments in productive infrastructure.

4.17

Transport Sector.11 The Ministry of Public Works and Communications (MPW&C) has responsibility for the sector. With few qualified professionals, core planning and supervision functions are neglected, as well as the planning and administration of road maintenance. The PRSP seeks to reduce transport costs and integrate poor rural communities with an ambitious list of transport works (a deepwater harbor and container port, a road to Brazil, the Berbice River Bridge, farm to market roads, bridges, wharves, stellings and ferries). While procurement issues are raised, the PRSP does not address other constraints that slow progress with the identification and execution of works. The Bank’s current transport strategy seeks to increase the cost effectiveness and reliability of investment and maintenance projects, expand infrastructure and facilitate Guyana’s integration to the regional and world economy. To support economic growth, poverty reduction and improved living conditions, the strategy seeks integration of rural areas through affordable accessibility to local communities, especially low-income groups, to economic and social centers. However, support for the private sector is essential to increase cost effectiveness and reliability of management, engineering, construction, rehabilitation, environmental/social impact, and maintenance activities. The EU will prepare a comprehensive Transport Sector Study in 2003, which could serve as the basis of Guyana’s long-term transport development strategy and would help clarify the institutional responsibility among ministries for works.

4.18

In the roads sub-sector, the Main Roads Rehabilitation Program was completed in 2002, and implementation of the Bridges Rehabilitation Program is gaining momentum. The Bank approved the Mahaica-Rosignol Road Rehabilitation Project in September 2001.

Apart from road rehabilitation works, this project will monitor the development and implementation of a routine maintenance management system, and supports cost

11

The country has a single general cargo seaport in Georgetown and other specialized bulk loading facilities; 6,000 km of navigable water-ways; a limited number of ferries and river taxis to cross the three larger rivers; 98 km of railroads dedicated to ore transport; and one international airport and 46 airstrips with short runways. Although the road network is sparse, most of the population has access to paved roads, which is generally in fair to poor condition with some segments (25%-35%) in bad condition. Higher maintenance expenditures (of at least 20%-50%) and improved management are needed to provide affordable, better and safer road conditions.

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reliability by the introduction of lump-sum investment and maintenance contracts for contractors and supervisors, which should restrict cost overruns and minimize delays, thereby increasing the efficiency of public investment. The project also supports the MPW&C to manage engineering, construction, and maintenance activities in the road sector that will be carried out by the private sector, and the inclusion of environmental and safety concerns in all aspects of road management. The Work Services Group established in 2001, supported public sector reform efforts by consolidating the functions of various PEUs, resulting in significant cost savings. The program also addresses the suggestion to “continue efforts in these sectors working to overcome implementation problems that have occurred in the past and continue its efforts in institutional strengthening of ministries, regulatory agencies and executing units” [CPE Recommendation 6, p. 54].

4.19

The program will also finance feasibility studies for two road projects, which would have direct and immediate economic impact: the Georgetown-Timehri Bypass Road (2004 or 2005) aimed at reducing transportation costs and congestion, and increasing highway safety, and the rehabilitation of the New Amsterdam to Crabwood Creek Road (2004 or 2005) to reduce both user costs and future reconstruction costs. While the former entails the construction of a new road and may take more time to prepare, the project could open new areas for housing and business development. The feasibility studies will determine which project has the highest rate of return and contributes most to economic growth, thereby determining the optimal sequence of project implementation.

These projects are end-loaded to allow the Government more time to increase its absorptive capacity through the ongoing programs. In addition, after the Transport Sector Study helps clarify the inter-ministerial responsibilities for works, the Bank could supplement other donor resources with a Farm to Market Roads Project (2005).

4.20

The PRSP also identified a deep water harbor and container port as national priorities.

Export and import costs are high due to insufficient facilities (such as wharfs, bulk and bond facilities), and high handling and transport costs. Another constraint is the siltation of rivers that restricts the size of ships. The NDS estimated that if larger ships had access to a deep water port, Guyana’s shipping costs to Europe could be reduced by half, or by about US$35-40 per metric ton in 1995, which is “crucial for the economic survival of rice producers in the long run.” A recent USAID Study (2002) also found that the average cost of shipping goods from Guyana to the United States represented 11.5% of their value, which compares to an average 5.0% from the Caribbean Basin and 3.3% from the world. For these reasons, the potential economic benefits of port rehabilitation and development are quite significant and could be realized in the medium term. The MPW&C prepared a Cabinet paper proposing the establishment of a Ports Authority. The Bank proposes to expedite a feasibility study for a Deep Water Port Program (2004) which, depending on the modality (public, private or a public-private mix), could attract Bank, PRI or IIC financing.

4.21

The ongoing Air Transport Reform Program seeks to bring air transport in Guyana up to international (ICAO) standards, and to increase efficiency by introducing a commercial element into the operations of major airports, while providing for regulatory control. In light of the September 11th terrorist attacks on the United States, the project will expedite the completion of the National Aviation Security Plan and enable the utilization of the -19-

MIF facility created to support investments in safety. The disbursement of the first tranche of this hybrid operation is expected in 2002, whose timing is opportune given the external shocks and the need for balance of payments support.

4.22

Electricity sector. Electrification of unserved areas is also a PRSP priority for growth and development, integration of regional economies, and for the reduction of poverty by facilitating participation in new economic activities, especially in the coastal areas where poverty has increased in recent years. The Bank’s strategy is to initially support investments in electrification with the highest rates of return by extending the grid in coastal areas, while laying the groundwork for a possible follow-on hinterland project. In this respect, the Unserved Areas Electrification Program was approved in June 2002.

The project includes the financial resources required to accelerate electricity sector development and extension of service to currently unserved consumers, further strengthening of the legal, regulatory and institutional framework and capacity building, and a component that would serve as the basis to structure demonstration projects in hinterland areas and lay the foundation for a possible follow-on Bank operation. A MIF Strengthening the Institutional and Framework for the Electricity Sector TC (2002) is anticipated to consolidate the policy making, regulatory and oversight functions, as well as possible PRI financing to GPL. The Guyana CPE supports the Bank’s continued involvement in the electricity sector.

4.23

Information and Communications. Guyana also has many attributes necessary to participate actively in the global information industry. These attributes are low labor costs, access to a fiber-optic gateway to international markets, and the linguistic, cultural and time-zone affinities with major markets in North America. The PRSP indicates that “implementation of an Information and Communications Technology (ICT) strategy will be a priority in diversification of the economy. It will be a pivotal tool to improve governance, accountability and generate employment – especially for women and youth– develop human resource potential, and strengthen national unity.” However, the ICT sector has been severely constrained by the lack of competition in the provision of services, which is being addressed by a MIF Modernization of Telecommunications operation (ATN/MT-7047-GY). The TC supported stakeholder consultations, the National Telecommunications Policy and Government negotiations with Guyana Telephone & Telegraph for an early termination of the monopoly.

4.24

In this context, the proposed Information and Communications Technology Program (2002) seeks to: (i) support the unit that will implement the ICT strategy; (ii) strengthen E-Government and the efficiency of service delivery in selected agencies such as the Deeds Registry and the Ministry of Public Works and Communications; (iii) contribute to human resource development; and (iv) support community outreach. Private sector participation in the project is expected to generate new business opportunities and employment for skilled workers, and support Guyana’s integration effort. The Bank is pioneering reform efforts and investment in this area. c)

4.25

Environmental sustainability.

To ensure environmentally sustainable projects, the PRSP seeks to: (i) enforce the provisions of the Environmental Protection Act; (ii) promote public awareness; (iii) involve local communities in developing programs to manage vulnerable ecosystems -20-

and conserve resources in protected areas; and (iv) strengthen the Environmental Protection Agency (EPA) to monitor/enforce standards, including compliance with environmental management plans, carrying-out regular environmental audits, and promoting training. Aligned with the PRSP’s goals, the Bank’s environmental strategy for Guyana seeks to strengthen the institutional and regulatory framework and human resources capacity of the EPA, promote land titling of indigenous land, finance coastal conservation programs, upgrade urban and sanitary infrastructure and solid waste management, promote capacity and training programs for environmental and natural resource programs, and rehabilitate priority infrastructure required for environmental mitigation and prevention efforts. The Bank approved the Environmental Management Program II (ATN/SF-7679-GY) in November 2001 to consolidate environmental management systems and develop sector-wide capacity to implement environmental programs, and proposes a MIF Environmental Technology Promotion TC for the adoption of clean production and environmental management systems by SMEs. The environmental improvement of the interim disposal site at Mandela Avenue is being financed by loan 1052/SF-GY, while ATN/SF-6858 is identifying institutional arrangements for private sector participation in the proposed Georgetown Solid Waste Management Program (2003). The loan would strengthen the institutional and technical capacity for private sector participation in the design, construction, financing, management and maintenance of the new sanitary and solid waste infrastructure and services. The EU is financing a Coastal Conservation Strategy.

2.

4.26

Public Sector Modernization.

In view of the deleterious impact that political uncertainty, social disharmony and increasingly violent criminal activity have had on the economy of Guyana, the Bank’s strategy supports the removal of institutional constraints to stakeholder dialogue and participation, strengthening of citizen security and justice, and the improvement of public sector capacity, service delivery, efficiency and transparency. The public sector is also responsible for improving the enabling environment for private sector development.

Because of its sustained dialogue and lead in many sectors, the Bank is the best positioned among MFI/donors to support Government with setting the stage for pragmatic, sustained and comprehensive public sector reform. For this reason, ongoing and proposed studies, TCs and loans will support a comprehensive public sector modernization effort, which responds to the suggestion that “While delays have been experienced in the proposed modernization of the public service project that was listed in the past two CPs it should continue to be at the forefront of the Bank’s program.”

[CPE, Recommendation 4, p. 54]. a)

4.27

Governance, Citizen Security and Justice.

An early attempt at forging a political consensus involved CARICOM sponsored agreements. Constitutional Reform Commissions were established to reform the Electoral System, the Judicature, the Presidency, Executive, Local Government and Parliament, the Economy, Finance, National Security, and commissions were also established for Indigenous People, Women and Gender Equity, Rights of the Child and Public Procurement in July 1999. Government strategy since the March 2001 election has been to promote bipartisan and stakeholder dialogue in search of “common ground” solutions.

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The President and the opposition leader have sustained dialogue since April 2001, and their agreements led to the establishment of bipartisan commissions to work on economic and political issues, including national security and re-capitalization of the army, procurement, distribution of land and house lots, resuscitation of the bauxite sector and depressed communities and judicial reform. However, progress has been discontinuous and intermittently interrupted by differences between the President and the opposition leader on the implementation of agreements reached.

4.28

With Bank support, the authorities launched the Participatory Action Plan in June 2001, consisting of broad-based stakeholder consultations on the PRSP, which culminated in a National Conference in October 2001 to review the recommendations. A major outcome of the consultation process was that stakeholders demanded major improvements in governance in the following areas: (i) public sector modernization including the reform of tender and procurement systems, decentralization of essential public services, and improvement of the land development framework; (ii) parliamentary reform to increase public accountability and the role of the opposition in governance; (iii) confidence in the political system through the above-mentioned bipartisan commissions; (iv) reduced crime and improved administration of justice; (v) reform of local government; (vi) protection of fundamental rights; and (vii) increased community participation.

4.29

While consensus building on policy issues is difficult to reach in Guyana, it is a key factor for enhancing long-term economic prospects. Building on the PRSP consultations and the Joint Task Force on Governance, the Bank proposes the preparation of a strategy on Governance (2002), which would provide a framework for the undertaking of activities in the governance area. The strategy would enable the stakeholders to define priority actions, which could possibly be financed by the international donor community.

The preparation of this strategy on governance addresses the suggestion that the Bank “continue investing in deepening its understanding of political and social context of the country…must be prepared for the political dimension in its programs…[and] assistance in overcoming these difficulties should be considered” [CPE Recommendation 7, p. 54].

4.30

The racial and political tensions that emerged after the 1997 and 2001 elections, as well as the recent increase of violent criminal activity, have severely hindered the development process in Guyana, and degraded the quality of life for the Guyanese population. Recently, the Government announced the amendment and updating of several pieces of legislation to ensure the rights of citizens, but a more comprehensive approach to combat violence is needed. In this context, the Government has requested Bank assistance to design a Citizen Security and Justice Program (2003). The principal objectives of the program are to: (i) prevent and reduce violence; (ii) strengthen crime management capabilities; and (iii) improve the delivery of judicial services. In order to achieve these objectives, a number of priority activities will be identified for support including: (i) capacity building of the Judiciary, and the Ministry of Home Affairs; (ii) strengthening of the criminal justice system; (iii) community actions; and (iv) social marketing and public education.

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b)

Public sector administration and financial management.

4.31

Despite extensive MFI assistance, public sector reform has been disappointing due to the absence of a conducive social and political climate for reform. Efforts to bring about institutional development failed due to: (i) absence of strong and visible support for public sector reform from the highest levels; (ii) failure of key stakeholders to participate in dialogue; (iii) insufficient institutional capacity within the government for reform, including lack of senior officials with appropriate technical capacities; (iv) the piecemeal and discontinuous approach to civil service reform in part attributed to the separate timing of international assistance and lack of effective coordination among donors; (v) the Government’s desire to minimize borrowing coupled with the limited availability of grant resources to comprehensively address issues; and (vi) incoherent reform measures such as changes in organization and staff responsibilities that were not simultaneously matched by compensation improvements, training or the recruitment of qualified personnel. Experience suggests that public sector reforms have two dimensions: horizontal reforms that cut across institutional boundaries to improve the environment in which public entities function that must move in tandem with vertical reforms of individual entities to strengthen organization, management and human resources.

4.32

The failure to articulate a comprehensive public sector modernization strategy weakened Government’s negotiating position vis à vis stakeholders, and resulted in ad-hoc policies that do not address existing systemic problems.12 Fundamental reforms have been delayed due to the weak economic conditions, political/social tension, and the ethnic composition of public employment. The PRSP renews Guyana’s commitment to improve “Government capacity to deliver public goods and services, strengthening public investment planning, project implementation capacity and the procurement system.”

While decentralization featured prominently in the PRSP, the merits of further decentralization in a small country with extremely limited human resources warrants further consideration. The Bank’s strategy calls for reforms that are comprehensively designed, technically sound, and implemented with a focus on the long-term development of technical capacities and stakeholder involvement. To attend Guyana’s priorities, two areas of modernization have been prioritized: administration and financial management. In the former, the Design of the Public Sector Modernization Program TC (ATN/SF-6867) is currently financing stakeholder consultations, overview studies of the public service function and human resource allocation, and institutional and organizational capacity assessments of ministries. The TC is devising improvement plans for service delivery and redefining the role of Government. As fiscal savings from retrenchment would be marginal, the proposed Public Sector Modernization Program (2003) would focus on long-term institutional capacity building by improving service delivery, human resources (management, compensation, training and systems), the institutional performance of ministries, and the monitoring of benchmarks.

12

The sustained decline of public employment was a product of emigration, better opportunities and compensation in the private sector, or privatization, rather than an explicit policy. Also, in the absence of a medium term wages policy, a public service strike was resolved by an independent Arbitration Tribunal, which awarded a 66% wage increase over two years that absorbed the majority of debt relief under the Original HIPC Initiative. In response, the Government sought to retrench temporary/unqualified works, but managed only to out-source security guard services through severance packages and their re-employment through a private cooperative.

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4.33

In the area of financial management, the priority is to support Government efforts to increase accountability, efficiency in the use of public and HIPC resources for poverty reduction, and development impact. The public sector’s overall, social and investment expenditures reached 48%, 17% and 14 % of GDP in 2001, respectively. Despite its recent decline, public investment remains high compared to other countries. The low return on investment stems in part from the high cost of providing basic infrastructure for a geographically large country with low population density, and in part from inefficiencies, weak capacity of the local construction industry, cost overruns and weak procurement (systems, procedures, contract partitioning and low thresholds). For these reasons, the proposed Public Investment Systems Program TC (2002) will strengthen the capacity of the Ministry of Finance to more effectively discharge its responsibility for economic and financial management of investment programs, improve absorptive and implementation capacity, and increase the developmental and growth impact of public investment. Feasibility studies must consider opportunity costs (i.e. alternative sites, scale, design and projects) and contingent liabilities in order to maximize returns and development impact. This TC would help prioritize the ambitious PRSP programs, as well as the smaller locally financed works that escape careful scrutiny.

4.34

In addition, a CIDA project has provided support for program-based budgetary management in pilot ministries, but advancing reform requires new legislation and strengthening of the Accountant General. CIDA is planning a follow-on Integrated Financial Management Systems Program covering accounting, budgeting and treasury.

The Government also prepared new procurement and audit laws, the former as a condition of the enhanced HIPC Initiative and the latter as an outcome of Constitutional Reform. The Bank will provide support through the Strengthening of the Auditor General TC (2002). While providing initial technical and policy support in the areas of procurement and tax policy/administration, the IMF’s PRGF and the WB’s Poverty Reduction Support Credit and PSTAC financing are diffused over many areas in seeking the broader implementation of the PRSP.

4.35

For these reasons, the proposed Public Financial Management Program (2003) would provide comprehensive, well coordinated and financed, long term technical support for these reform, which will support efficiency in the use of public resources and enhance private sector development. The Bank would finance a Steering Committee of Government and Donors, which would monitor annual progress with an agreed Public Policy Agenda (Box 1). The use of the project preparation facility is recommended to accelerate program preparation, and finance the activities of the Steering Committee and other urgently needed technical assistance. Satisfactory implementation of the agreed Public Policy Agenda will also serve as the basis for future Bank support.

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Box 1: Public Policy Agenda for Governance, Financial Management and Socio-Economic Development 1.

2.

•

• • 3.

•

•

• 4.

4.36

Fiscal sustainability, including the initiation of a comprehensive tax reform and strengthening of tax administration and accountability in line with the recommendations of IMF/CARTAC studies.

Improve public sector accountability arrangements: Integrated Financial Management Systems, including new legislation for the introduction of program budgeting and modern human resource management and information systems, as well as the strengthening of the Accountant General legislation, in line with the recommendations contained in the World Bank’s Country Financial Accountability Assessment.

Public procurement, including new legislation, regulations and introduction of modern human resource management and information systems in line with the recommendations contained in the World Bank’s Country Procurement Assessment Report.

Public audit: enactment of a new audit law, strengthening of the Office of the Auditor General, and introduction of modern human resource management and information systems in line with the recommendations and benchmarks contained in the IDB’s institutional and organizational capacity assessment.

Efficient use of public and HIPC resources: Use of HIPC resources for poverty reduction: initiate continuous monitoring, evaluation and periodic updating of the PRSP, including the strengthening of data collection agencies, improving the statistical measurement of outputs and outcomes, and carrying-out broad public discourse on the findings and for policy making purposes to be supported by a proposed Bank program.

Public investment, including strengthening of the Ministry of Finance to more effectively discharge its responsibility for economic and financial management of investment programs, improve project implementation capacity, maintain the monthly portfolio review exercise, and increase the developmental and growth impact of public investment in line with the IDB’s institutional and organizational capacity assessment.

Public administration: timely implementation of a public sector modernization strategy and benchmarks being identified by the IDB’s PSMP-TC, as well as a sustainable medium-term wages policy.

Improve the “Rules of the Game” for private sector development: full implementation of the strengthening of the deeds registry, establishment of a commercial court or alternative resolution mechanism, establishment of a credit bureau, strengthening of banking supervision, accelerated access to government owned land, business licenses and improved sector regulations, and implementation of a comprehensive trade and investment framework.

Given the risk of external shocks, the financing needs of the PRSP, and the broad scope of the public sector reform agenda, the Bank may also wish to consider a sector or hybrid lending approach in any of the two above mentioned loans. This is consistent with the suggestion that “the Bank may choose to continue with sector adjustment lending. It needs to develop sector conditionality based on realistic expectations of policy change and development. While the Bank’s record in this regard is relatively good, it should attempt to ensure that sector lending is completed during the period when the funds are most needed and not stretched out to the future.” [CPE Recommandation 3, p. 50]. c)

4.37

The Bank will update a 1993 study and, if warranted by dialogue with the GOG and the IMF, initiate a more comprehensive Public Pension System Study (2003). This study would include an evaluation of the National Insurance Scheme’s finances, investment practices, benefit policies, and the institutional framework and recommend reforms.13 3.

4.38

Other public sector.

Strengthening Social Programs.

The PRSP calls for the strengthening of social programs and institutions, and contains poverty reduction targets (Annex IV). The Joint Staff Assessment of the PRSP projects

13

The NIS serves public employees and the self-employed. Because of emigration, demographics, and benefit/ contribution policies, the sustainability of the NIS is questionable and may represent a contingent public liability.

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that 4 out of 7 goals in common with the Millennium Objectives will be achieved. Based on the strong link between economic growth and poverty reduction, the Bank’s strategy in the social sectors seeks to increase access to social services and infrastructure, and improve targeting, monitoring and accountability. The lack of baseline information makes it difficult to estimate social returns a priori, but the proposed programs reflect the Government’s social priorities and estimated costs. Ongoing Bank support for the PRSP consists of the development of water systems in Georgetown, low-income housing, urban rehabilitation, and the third phase of the Social Impact Amelioration Program (SIMAP), which are at initial stages of implementation. SIMAP is the cornerstone of the Government’s poverty reduction effort and the new program was designed to build on its strengths in reaching the poor, particularly in the rural interior, and involves poor communities in the design and implementation of projects in a demand-driven approach.

The program finances small infrastructure works in poor communities and contains a pilot program for the provision of social services to vulnerable groups by NGOs. a)

Education sector.

4.39

An important challenge in stimulating equitable economic growth and poverty reduction is to stem the decline in the quality of education and reduce the loss of trained teachers and professionals to emigration. While primary education is nearly universal, budget constraints and low quality have combined to produce a system that is unable to deliver acceptable levels of literacy and numeracy across geographic and socio-economic groups.

Secondary enrollment is about 58% of the corresponding age cohort, and its expansion is constrained by physical capacity and the lack of qualified teachers. However, a preliminary survey of 14-25 year olds indicated that nearly 90% were functionally illiterate, and students progressing to tertiary education represent only about 5% of the corresponding age cohort. Another concern is the increase of untrained teachers and their placement in under-served areas, where equity targeting and intervention strategies are needed the most, and high levels of student and teacher absenteeism. Education sector efficiency is constrained by centralized decision-making, fragmented implementation, obsolete regulations, and inadequate financial and human resources.

4.40

The education sector has been prioritized in the NDS, by the HIPC Initiatives committing Government to increase education expenditures, and the PRSP calling for the delivery of quality basic education, redistribution of resources to rural and interior locations, increased resources for rehabilitation/maintenance of school buildings, and the push toward universal access to secondary education. However, the strategy does not address or provide for early childhood education programs. The EU and CARICOM are also planning to study and help develop a strategy to mitigate the costs of emigration. The Bank’s strategy is to redouble efforts in education through policy reform and investments. The Primary Education Improvement Program was completed in early 2002, under which 72% of the primary-school population benefited from access to improved or expanded educational facilities. The Bank also co-financed a sector-wide strategic plan and will support its implementation with the first phase of Basic Education, Access, and Management Support Program, which was approved in June 2002. The operation seeks to strengthen: (i) the policy and institutional framework to support education reform; (ii) MOE’s capacity to sustain improved literacy and numeracy attainment in students through the basic education cycle; and (iii) Guyana’s push for universal secondary -26-

education. In addition, the Bank financed a study to identified possible investments in technical and vocational training, the first phase of which will be financed by the CDB. b)

Health sector.

4.41

Guyana’s health indicators compare poorly with those of other countries in the Caribbean region. Infant mortality remains at a high level of 57 per 1,000 live births, while the maternal mortality rate is on the order of 190 per 100,000 births. Malaria remains a serious problem in the interior of the country, while the reported estimate of HIV prevalence of 3% of the adult population makes Guyana the second most affected country in the Caribbean region. The epidemiological profile suggests that health gains can be achieved by improving basic preventive and curative health care provided at the primary care level, and through public health awareness campaigns. Poor health indicators reflect severe shortcomings in the quality, effectiveness, efficiency and equity of existing systems. These problems are attributed to fiscal constraints, inappropriate organizational structure, weak capacity to define priorities, and to manage and monitor the system, acute shortages and inefficient use of trained personnel, equipment, and pharmaceuticals, a dilapidated physical infrastructure, and the lack of emphasis on primary care.

4.42

The 1995 National Health Plan (NHP) identified constraints and made a commitment to primary health care, but it fell short of defining new policies and an implementation strategy. The PRSP’s health objectives also commit the Government to increasing expenditures and improving access, coverage and quality of services, with special emphasis on vaccine-preventable childhood diseases, malaria and other communicable diseases. However, the Ministry of Health has also initiated administrative reforms to decentralize health services, increase regional autonomy and transfer personnel out of the civil service, reforms whose feasibility has not been established. A Health Sector Policy and Institutional Development TC (ATN/SF-5834) was approved in 1998, and is making progress to improve the quality of primary care. The Government’s draft National Health Plan will be discussed by Cabinet in September 2002. In the meantime, the Bank is providing support for the proposed Nutrition Program (2003), which is focused on nutrition education, promotion of breastfeeding, and reduction of micronutrient deficiencies, and is targeted at infants, small children and pregnant and lactating women.

Following the mid-term review of the above mentioned TC in August 2002, the Bank will consider a comprehensive Health Sector Program (2003) to improve the quality of primary care services and strengthen institutional capacity by financing the reorganization of the sector, training of managers and practitioners, and investments. c)

4.43

Social sector statistics and policy.

The PRSP recognizes institutional weaknesses that constrain the collection of reliable social sector information for monitoring living conditions and evaluating programs.

Monitoring of PRSP implementation is an ongoing process, which is facilitated by the Monitoring and Evaluation Unit in the Office of the President, line ministries and a civil society Steering Committee. In addition, the PRSP will be updated every three years through consultations with civil society (religious groups, youth, farmers, the disabled, mothers, community groups, regional organizations, business associations, the private sector, donors and other special thematic groups). This broad based consultation process -27-

will help mitigate the risk of gender and other forms of social exclusion. A Bank TC (ATN/SC-7538-GY) is supporting the preparation of Census 2002, which will provide information for a new Household Income and Expenditure Survey (HIES) and a Poverty Map. In addition, the Bank proposes a Social Statistics, Policy Analysis and Training Program (2003) to strengthen the capacity of line Ministries, the University and the Bureau of Statistics to analyze social statistics and to use this analysis for dialogue and decision-making. In this context, INDES courses could provide complementary training for managers in social sector ministries and related agencies. This program is key to improving social sector information required to monitor, evaluate and update the PRSP. C.

The Operational Program.

4.44

To implement the Bank’s strategy, an indicative program containing 14 operations for US$244.3 million for the 2002-05 programming cycle is proposed (Table II.5a).

Financing for the proposed operations is contingent upon the overall availability of FSO, and its allocation among eligible countries on the basis of Country Institutional and Policy Evaluation (CIPE). The CIPE methodology approved by the Board will ensure that scarce FSO resources are not carried over for indefinite periods, and are progressively reallocated to the best performing countries. Guyana’s CIPE baseline ranking was completed in 2002 according to criteria in the areas of economic management, structural policies, policies for social inclusion/equity, and private sector development, governance, and public sector management and institutions. The pipeline also contains studies, technical cooperation, and possible PRI financed operations.

4.45

The baseline lending scenario reflects the priorities established by the Report on the Eighth General Increase in the Resources of the Inter-American Development Bank (IDB-8) and the Institutional Strategy: the pipeline includes six programs for the modernization of productive infrastructure (57.6% of resources): an information and communications technology program, an operation for agricultural infrastructure, and the construction/rehabilitation of two main roads, rural access roads and the rehabilitation of the Georgetown port. The pipeline includes three strategic programs for the modernization of the state (15.9%), one of which was carried over from the previous programming cycle. Social programs (23.2%) include the nutrition and health sector programs, and strengthening of social statistics systems. The trade facility (0.7%) supports Guyana’s integration efforts, and an environmental loan (2.7%) will promote sustainability. In line with the major strategic thrusts, the baseline lending scenario reflects the concentration of resources on programs designed to accelerate and sustain economic growth (60.9%), which are supported by programs to improve governance and public sector performance (15.9%) and strengthening of social programs (23.2%) (Table II.5b). The proposed pipeline sustains support in areas where the Bank has already developed experience and had an impact (55.5% of resources) as suggested by the CPE, while the balance of resources is devoted to new areas to address critical challenges. Improvement is most needed in governance, financial management, the environment for private sector development, and strengthening of social programs according to Guyana’s baseline CIPE ranking in 2002.

4.46

The baseline lending scenario is also within the maximum debt thresholds established by the Bank (Annex II.4). During the 2002-05 programming cycle, IDB exposure to -28-

Guyana would be expected to average 0.9%, IDB debt service to export ratio will average 2.7%, and IDB debt service to total debt service ratio will average 25.0%, all of which are within the Bank’s guidelines of 18%, 8% and 30%, respectively. The multilateral to total debt service ratio would decrease from 69.2% in 2001 to 59.6% by 2005, which is above the guideline of 50% but justifiably so as a HIPC country.14 If it continues to practice sound external debt management and fosters private sector led growth, Guyana’s debt trends should not pose a threat to the Bank or its operations.

4.47

The shift from the baseline to the low lending scenario of US$111.3 million in the 200205 period would be reflected in a gradual, rather than sudden, reduction in disbursements compared to projected levels. Two mechanisms would influence the transition: a.

Failure to achieve progress on agreed performance indicators (see below), other structural and policy variables included in the CIPE, and on measures required to improve portfolio execution, would translate automatically into a loss of FSO resources relative to other eligible countries.

b.

The Bank would delay the approval of major infrastructure projects until such time as satisfactory annual progress on the performance indicators has been achieved. For example, the Bank would seek approval of the first growth project only after the measures agreed for 2002/03 have been completed.

4.48

On this shifting scale of country assistance, the low lending scenario would reflect an absence of progress on agreed performance indicators and continued difficulties in Bank project implementation. In this event, public and social programs would continue to advance in order to provide the authorities with the financing and technical assistance tools required to address the critical public sector and poverty reduction challenges.

Alternatively, a high lending scenario of US$307.8 million could arise with PRI or IIC financing if Guyana improved the trade, investment and business environment.

4.49

Performance indicators for the 2002-03 period have already been selected from the Public Policy Agenda, and final agreement with the Government on the time horizon for these indicators is expected during an IDB/IMF/WB mission in the fourth quarter of 2002. These indicators include: (i) fiscal sustainability: agree with IMF staff on an action plan for reform of the tax system and its administration as reflected by the FAD recommendations and contained in the IMF/CARTAC action plan; (ii) public sector accountability: prepare draft legislation covering new financial administration and budget management systems and table organic budget law as agreed with IMF/CIDA; enact amended Procurement and Tender Act, and create the National Procurement Administration Board secretariat and appoint staff according to WB’s CPAR action plan; enact a new Audit Act, authorize the Auditor General to hire staff and upgrade salary levels and implement IDB technical assistance; empower the Economic Affairs Committee of Parliament with a role in financial oversight, complete analysis and recommendations to reduce discretion in six government agencies and make effective the Government policy of public disclosure of the financial affairs of public officials

14

This ratio increased since the early 1990s, reflecting Guyana’s debt management strategy to minimize borrowing and reschedule non-concessional debt, and the HIPC Initiatives that restrict public external borrowing except on concessional terms. This indicator now measures only the distribution of multilateral vs. bilateral concessional debt.

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according to WB’s CFAA Action Plan; negotiate a Public Sector Financial Administration Program with the IDB; (iii) efficiency of public resource use: disseminate widely Census 2002 information as supported by an IDB TC; complete design of a plan to strengthen pre-investment analysis and public investment systems with IDB; complete design of a plan to strengthen social statistics, policy and training with IDB; and complete overview studies of public service functions and human resource allocation and the institutional and organizational capacity assessments of pilot ministries with the IDB’s PSMP-TC; and (iv) “Rules of the Game”: complete financial sector study; identify amendments to the Financial Institutions Act with IMF/CARTAC/IDB support; and negotiate technical assistance programs with IDB (such as the possible establishment of a commercial court/ADRM). In subsequent years, the annual performance indicators will be based on the recommendations of the Steering Committee on the Public Policy Agenda (see Box 1) and agreed by the Government and the Bank.

4.50

The proposed program of non-lending services in the areas of governance and public sector reform (pensions, bauxite), as well as economic growth (trade and investment, infrastructure) will help sharpen the authorities’ strategic focus and the Bank’s understanding of priorities requiring tailored assistance. This program complements the World Bank’s studies program for 2002-05 in terms of areas and timing (Annex III).

D.

Coordination with other donors.

4.51

As Guyana’s most important development partner (see Introduction), the Bank has played a key role in assisting the authorities with donor coordination on policy and project matters. At the policy level, collaboration with the IMF and World Bank has been intense, reflected in routine joint missions to Guyana, and the incorporation of Bank analyses and recommendations into Fund/Bank documents, including the PRGF, the PRSP Joint Staff Assessment, and the World Bank’s Country Assistance Strategy and Country Financial Accountability Assessment. Bank operations, such as the energy, agriculture and finance sector loans, have supported required reforms and offered indirect balance of payments support under IMF programs. The preparation of the Bank’s Country Strategy was facilitated by the Bank’s participation in stakeholder consultations on the PRSP and HIPC monitoring since 1996, while project teams have helped define sector strategies and offered comments on PRSP drafts, most of which are now embedded in the PRSP.

4.52

At the project level, the Bank as leading donor is systematically consulted by other donors regarding planned activities in Guyana. (Appendix I provides a broad overview of interventions in each sector.) Examples of direct collaboration are numerous: in just one example, the Basic Education, Access, Management Support (BEAMS) loan approved in June 2002 will be complemented by CIDA’s technical support for the modernization of the Ministry of Education’s financial management system, while BEAMS will provide resources for the required hardware and networking. Likewise, the CIDA-funded Guyana Basic Education Teacher Training and the DFID-supported Guyana Distance Education projects will be expanded under BEAMS to provide all primary teachers with an opportunity to upgrade their educational qualifications. Finally, construction of new secondary schools under BEAMS will meet the standards required to implement the new general secondary curriculum developed under the WB Secondary School Reform -30-

Program and the DfID Guyana Education Access Project. Other examples include the cofinancing by the Bank and DFID of a sector-wide strategy for education, and the Bank’s Social Impact Amelioration Program, which represents the third phase of a program previously cofinanced by the World Bank. Bank support to Georgetown Water and Sewerage Company has complemented that of DFID/World Bank to the Guyana Water Authority, and this joint effort has supported the authorities’ decision to replace the two companies with a sole Guyana Water Company.

4.53

An important formal mechanism for coordination of the entire donor community along sectoral lines was instituted in June 2001, with the creation of thematic groups in health, education, water, and housing. These groups, involving donors and line ministries, review, plan and develop project pipelines so as to minimize duplication of donor programs. The Bank aims to deepen these coordination efforts in future. In the policy area, in particular, it is hoped that the proposed Steering Committee of Government and Donors will constitute a solid mechanism for the promotion of constructive dialogue and consensus surrounding the main challenges facing the government.

E.

Indicators for Program Assessment.

4.54

Program assessment will take place on a number of fronts simultaneously. “More realistic medium-term goals, targets and indicators need to be established under the broader priority themes, reflecting the capacity of the country and its agencies for achievement.

As this is to be a long-term process milestones and benchmarks should be used to indicate progress” [CPE Recommendation 2, p. 50]. In this respect, the Board approved the CIPE methodology to monitor progress with economic management, structural policies, social inclusion/equity, and private sector development, governance and public sector management/institutions, which will determine performance based FSO allocations among eligible countries as of 2002. Guyana’s CIPE ranking will be updated on a yearly basis, which will allow for annual monitoring of progress or slippages in these important areas of policy and institutional development. Secondly, sustained progress with the Public Policy Agenda (Box 1) in the areas of fiscal sustainability, public sector accountability arrangements, efficient use of public and HIPC resources for poverty reduction, and the “Rules of the Game” for private sector development, will serve as triggers for the lending scenarios. Finally, Guyana has established its own PRSP goals (Annex IV) to be monitored continuously. According to the Joint Staff Assessment, 4 of 7 goals in common between the PRSP and the Millennium Objectives may be achieved.

4.55

In addition, the performance indicators contained in the Strategy Matrix are designed to monitor the implementation of the Bank’s strategy and facilitate future assessments. At this early stage in the programming cycle, the indicators are derived from the logical framework of projects at different stages of identification, and reflect Guyana’s PRSP. Benchmark specificity varies as a function of the available baseline information, project development, and negotiation with authorities. However, the project and sector-specific knowledge requirements suggest that project teams and/or the country office have comparative advantage in monitoring progress. The country team should also seek to leverage critical benchmarks under future IMF PRGF arrangements, and as part of the Public Policy Agenda and broad consultations on PRSP monitoring. The case of Guyana -31-

is quite unique in that the Bank is pioneering reforms in various sectors, which should make attribution of impact to IDB projects relatively easy in future program evaluations.

F.

Strategy Implementation Risks and Agenda for Country Dialogue.

4.56

A number of issues have been raised in this document that require further dialogue with the authorities. Accelerating and sustaining economic growth is the most effective instrument for the reduction of poverty in Guyana, and essential for macroeconomic and debt sustainability. However, both exogenous and endogenous factors have undermined progress. Supportive fiscal, monetary policies and exchange rate policies, coupled with policy and institutional reforms to improve the trade, investment and business environment, are need to enhance economic performance. In particular, the acceleration of land regularization and related agricultural policies could prove to be an important catalyst for the recovery of production, investment and financial deepening.

4.57

Improving governance and public sector modernization are preconditions to restoring confidence in the economy, the authorities, and for private investment. Public expenditures continue to “crowd-out� the private sector, and investment prioritization should consider opportunity costs and limit contingent liabilities to enhance its development impact. To address the risk of extremely weak institutional capacity, the role of government should be redefined in the context of a comprehensive reform strategy that addresses human resources, institutional performance and financial management weaknesses. The recent deterioration of the revenue base, and the absence of a medium term wages policy represent serious fiscal risks. To mitigate these risks, the proposed Public Policy Agenda for the 2002-05 period will be a key instrument for dialogue with the authorities on specific benchmarks for the 2002-03 period to initiate implementation.

4.58

The thrust of the Bank’s next programming mission to Guyana should be to intensify dialogue on policy and institutional reforms to enhance private sector development, agriculture and rural development, and public sector modernization. Agreement should be reached on how to monitor the implementation of the overall strategy, and the role of the annual programming missions in fine-tuning the strategy.

-32-

Government Strategy IDB Strategy

IDB Actions Recent/Ongoing

Strategy Matrix

Proposed

Achieve external debt sustainability

• USAID PL480.

• Implement • Donors providing • Continued conditions required debt relief under support of Guyana’s to reach E-HIPC original HIPC and HIPC Initiatives. completion point interim relief under by 2003. enhanced HIPC. (b) Improve the enabling environment for sustainable private sector development.

Implement policy, DFID-securities & Strengthen: Improve legislation, insurance; EU-PSC, trade, • financial regulation: Linden Econ. Advaninvestment, supervision & cement Program, business and • Micro, small, access to credit. possible support to rum financial cottage businesses industry; USAIDenvironment law & credit.

• Legal/ regulatory investment, cottage framework; review industry, trade studies; • Securities & judicial system & CIDA-business insurance. reporting advisory and private requirements. sector competitive• Liberalize ness; IFC FIASfinancial sector; • Promote new review of investment upgrade banking concessions, code and fiscal law & supervision. diversification and incentives; CARTAC eco-tourism. financial/tax review.

• Tourism development.

• Institutions. (c) Expanding productive infrastructure.

Agriculture: Convert lease- to DFID/Bank TC • Contingent upon Increase free-hold land; support Lands and further reforms, agricultural increase plot size; Survey Department; rehabilitate the productivity improve D&I USAID/CDB focuses drainage and and diversify services, marketing on rehabilitation of irrigation system output/markets price & extension drainage & irrigation. and strengthen D&I information; IFAD supports smallmanagement. develop rental scale agriculture; market for depots, WB/DFID supporting • Accelerate cold storage, Guysuco rehabilitation; regularization of machinery; reform EC support rice sector. land tenure. sugar sector.

• Agriculture Sector Loan. (1995) fully disbursed in November 2001.

• Prudential Supervision TC (2001).

• Agricultural Support Services Program (ASSP) (2003).

• Eco-Tourism (MIF, 2002/03).

• Financial Sector Study (2002): Commercial Court/ADR TC (2003); Credit Bureau TC (2003); Remittances TC (MIF, 2003).

• Trade Facility Loan (2003); •Trade, Invest. & Business Envir.

(MIF, 2003).

• Financial Sector Loan (1995) fully disbursed in November 2001.

•Strengthening the System for Property Rights (MIF, 1999).

• Continued Monitoring.

• Providing debt relief under the original HIPC Initiative and monitoring.

(1) Accelerating and sustaining economic growth. (a) Maintaining a sound macro-economic framework, deepening structural reform and achieving external debt sustainability.

Balance of payments Achieve • Implement fiscal/ • Coordination with • Continued • Support macrosupport provided by: macromonetary policies IMF and IFIs coordination. economic policies economic for price, exchange including meetings and structural sustainability • IMF’s PRGF. rate stability, and and missions. reform with ongoing balance of payment sector loans. sustainability.

• WB’s Poverty Reduction Support • Define policy Improve • Deepen structural • Monitor sector • Monitor air Credit (2002). benchmarks in all system reforms. loans (energy transport. new operations. efficiency, disbursed in 2000, productivity • EC’s Structural agriculture and • Identify public Adjustment Support. finance in 2001). sector reform loans.

Country Objectives

Other Bilateral/ Multilateral: Strategy/Actions

• Define policy agenda: D&I (farmer control, management, operation, maintenance); fee collection (for water and public land use); land regularization; plans for rice subsector plan, MMA, diversification; support for forestry, fisheries and nontraditional crops.

• Financial sector study completed and programs negotiated (2002).

• Trade and investment studies completed (done).

• Private Sector Development Conference hosted (done April 02).

• Implement Deeds Registry (started Jan. 02).

• GNCB brought to the point of sale (done 9/01) liquidated by 12/02.

• Present request for interim relief to Board.

• Bank policy agenda and Public Policy Agenda advanced & PRGF contributions made in the areas of private sector development, agricultural development, public sector reform of administration and financial management.

IDB Strategy/Program Implementation

• Increase of agricultural land leases distributed: 220 in 02 to 345 in 05 (PRSP) & review target.

• D&I Bill approved by Parliament in 2002.

• MOU for sugar sector rehabilitation (done).

• Commercial court backlog (18 mo.) reduced.

• Increase of business land leases distributed: 105 in 02 to 150 in 05 (PRSP); private investment increased from low of 8.1% of GDP in 2001.

• CIPE ranking for trade and commercial policy, banking and financial sector, & private sector development improved from 2002 baseline.

• Public sector reform loans agreed and approved in 2003.

• NPV debt-to-revenue ratio reduced to 250% at completion point in 2003.

• CIPE ranking for econ.

Mgmt/structural policies improved from 2002.

• Satisfactory performance and targets achieved under the new PRGF.

Country Level Outcomes/Targets

Performance Indicators

ANNEX I Page 1 of 4

Environment: Minimize impact of environmental degradation from use of natural resources for economic development

Telecomm: Increase competitiveness in telecommunications & information services, diversify economy.

Electricity Sector: Increase access to electricity services in unserved areas to enable participation in new economic activities.

Transport Sector: Reduce transportation costs, and improve market access and overall competitiveness.

Country Objectives

• Implement Envir.

Protection Ac. • Strengthen EPA monitoring/enforce ment capacity • Promote local involvement in the management and conservation of protected areas & vulnerable ecosystems.

• Undertake investments.

• Implement a broad-based Information Technology Strategy.

• Undertake investments required to provide electricity services in unserved areas.

• Implement electrification strategy.

• Promote joint ventures for technology transfer.

• Increase coverage of main roads, bridges, ports and other infrastructure by management contracts.

Government Strategy

• The WB, EC, and CDB-sea defense rehab.

• UNDP-Iwokrama Rainforest.

• DFID - Forestry Comm.

• CIDA-Environmental Capacity Development Project).

• WB -El Niño.

• CIDA supported development of ICT strategy.

• EC (EIB) interest in financing private partner of Guyana Power and Light.

• EU will undertake Transport Study to identify/prioritize major projects for integration & clarify inter-ministerial responsibilities.

• Major MFI/donor involvement in all areas of infrastructure development.

Other Bilateral/ Multilateral: Strategy/Actions

• Implement regulations.

• Strengthen environmental management in forestry, mining, land demarcation/ titling indigenous/ protected areas.

• Upgrade sanitary and solid waste infrastr & managm.

• Develop infrastructure & connectivity in low income areas.

• Promote ICT use in public/private sectors for training, education, business.

• Increase telecom. sector competition.

• Strengthen legal, regulatory and institutional framework, & implementing pilot hinterland project.

• Rehabilitate/ expand nfrastructure to reduce costs and increase safety.

• Increase economic activity & quality of life by connecting unserved lowincome areas.

• Promote competitiveness & private sector participation in financing, operation, & maintenance.

• Prioritize public investment.

IDB Strategy

• Environmental Technology Promotion (MIF).

• Georgetown Solid Waste Management Program (2003) £.

• Environmental Improvement of the Georgetown Interim Disposal Site TC.

• PRI: IER for GPL approved in 1999, inv./fin.plan under prep.; Amaila Falls hydro plant - EIA & feasibility studies under preparation.

• Information and Communications Technology (2002) £.

• Deep Water Port Program (IDB/PRI/IIC, 2004). £ • Strengthening Institutional Framework for the Electricity Sector (MIF, 2002).

• Farm to Market Roads (2005)

• New AmsterdamCrabwood Creek Road (2005).

• Georgetown Timehri Bypass Road (2004).

Proposed

• Environmental Management Program TC II (11/2001).

• C&D Action Plan supported preparation of ICT strategy.

(MIF).

• Modernization of Telecomm. TC

• Unserved Areas Electrification Program (approved 6/2002) £.

• Air Transport Loan (1st tranche expected in 2002).

• Mahaica-Rosignol Road Rehab. Proj.

• Bridges Rehab.

Program.

• Roads Rehabilitation Program completed.

Recent/Ongoing

IDB Actions

• Pre-investment studies for solid waste disposal completed (done).

• EU Coastal Conservation Strategy completed.

• Competition in telecomm. increased (GT&T monopoly renegotiated in 2002).

• ICT law drafted and approved (2002).

• ICT Strategy completed (done).

• Hinterland electrification strategy defined (by completing 3-5 demonstration projects).

• Georgetown Port feasibility study completed, ownership/ reform decisions by Cabinet completed.

• Electrification Strategy completed (done).

• 2nd tranche Air Transport disbursed (02).

• Diversification: Eexports increased, creating 5,000 jobs and US$15 million revenue/year.

• CIPE ranking for Policies/Institutions for Environmental Sustainability improved from 2002 baseline.

• EPA financing through Budget starting in 2002.

• Private sector projects, participation/employment in Georgetown’s waste management increased.

• Access to internet increased to 8,000.

By project completion: • General Registrars Office issues certificates at Post Office, reducing time from 2 months to 15 minutes.

• Electrification to unserved areas expanded: 40K customers connected by 2006 and capacity increased by 40 MW (05) (PRSP).

• Georgetown port: shipping costs from Guyana reduced.

• Tariffs rebalancing within full scope of GPL license except for targeted subsidies.

• Competitive and safe air transport sector achieved.

• By road completion: Maintenance spending increased by 20% and 500 km of roads under routine maintenance by 06; Roads IRI indexes less than 3.5; 15% fewer accidents; fewer cost overruns.

• Work Services Group to established (done).

• EU Transport Study completed in 2003.

Country Level Outcomes/Targets

IDB Strategy/Program Implementation

Performance Indicators

ANNEX I Page 2 of 4

Government Strategy

Other Bilateral/ Multilateral: Strategy/Actions

•Privatizing state enterprises (incl. bauxite) except for: Restructuring of Guyoil, Guysuco, and GNSC.

• Increase connections, target subsidies, and strengthen capacity in water, housing and land sectors; divest/regularize land & relocate squatters.

• Continue SIMAP implementation & build on strengths in reaching the poor in a demand driven approach; continue BNTF.

Ongoing Social & Poverty Reduction Programs: Improve quality, access, equity and service delivery in water, low income housing, and urban services.

Targeting: Increase access to social programs by the poor, especially in the interior.

(3) Strengthening Social Programs.

Other: Improve public sector efficiency

• WBTAC supports PRSP implementation.

• CIDA-Building Community Capacity Project.

• CDB - Basic Needs Trust Fund and Poor Rural Communities Support Program.

• EC supports low income housing.

• CDB has an ongoing Water Rehab.Project.

• WB/DFID-GUYWA & water strategy.

• Former IMF, WB and IDB involvement in ERP privatizations.

(2) Improving governance and modernizing the public sector.

Governance: • Develop & • Various-Election Increase public implement strategy Comm. accountability, for stakeholder • UK – police. ownership, and dialogue, • USAID –Rule of restore participation & Law & Participatory confidence. cooperation.

Governance TC. Public Sector: • Strengthen audit, • WB undertaking Improve accounting & PER, CFAA, CPAR delivery of procurement PRSC/TAC. goods and laws/systems.

• DFID –some public services, and sector reform. increase public • Implement • CIDA GEM IIfinancial reform of tax financial mangmt. accountability system, public • USAID – Rule of and administration, and Law & Participatory transparency. public financial Governance. administration.

• CDB & other MFI/bilateral TA. • Negotiate a • IMF/CARTAC Tax sustainable wagePolicy. policy.

Country Objectives

• Increase access of poor communities (incl. Amerindian) to priority social and economic infrastructure.

• Increase access and delivery of water, low income shelter and urban services and infrastructure to the poor.

• Generate options for restructuring and policy decisionmaking.

• Improve financial management: public investment, audit, accounting, treasury, tax, procurement, and other systems.

• Modernize public administration: improve service delivery, strengthen Institutional and Organizational Capacity of Ministries.

• Ident. institutional constraints.

• Incr. stakeholder participation and dialogue.

IDB Strategy

• SIMAP III (2001).

• Low Income Shelter/Settlement Program (2000).

• Rehab. of Potable Water Supply System II (1999).

• Urban Dev. Program (1998).

• PRSP support by C&D Action Plan & monthly donor meetings on thematic groups.

• Multi-Sector PreInvestment TC (1996).

• Design of the Public Sector Modernization Program TC (2000).

Recent/Ongoing

Proposed

• Pension Study (Contingent, 2003)

• Public Investment Systems TC (2002).

• Public Sector Financial Management Program (2003).

• Auditor General TC (2002).

• Citizen Security and Justice Program (2003).

• Public Sector Modernization Program (2003) £.

• Governance Strategy (2002).

IDB Actions

• SIMAP III baseline monitoring data collected (project distr. by region, gender, poverty, avg. # and cost of beneficiaries & # of jobs created).

• Merger of GUYWA and GS&WC completed (done) .

• Progress with municipal, water and housing infrastructure development plans contineud.

• PRSP monitoring: consultations with broad civil society & thematic groups to address gender and social exclusion continued.

• Public investment systems TC negotiated 02.

• Monthly portfolio reviews continued.

• Use of expatriate/ foreign consultants agreed.

• Contingent on dialogue and decisions concerning public pension reform.

• Dialogue: Public Policy Agenda 2002/03 agreed; Steering Committee established in 03.

• Overview/Institutional and Organizational Capacity Assessments completed by 12/02.

• Consultation w/GOG & stakeholders on strategy, program and TORs completed in 2002.

IDB Strategy/Program Implementation

• Targeting: Min.# Amerindian, small & regular projects completed: 105, 125, 105 in 02-04.

• Poverty reduced from 35% to 31.4% by 2005.

• CIPE ranking for gender equity, indigenous and other minority issues improved from 2002.

• Water: Connections increased from 71500 connections (02) to 78000 (05); regulatory agency, tariffs and framework approved by 2002.

• Housing: increased lots distributed: 4750 in 02 & 6200 in 03.

• Decreased potential public sector deficit, excluding one-time restructuring charges.

• CIPE ranking for portfolio implementation improved from 2002.

• Procurement and audit legislation approved by Parliament in 02 , and implemented per Public Policy Agenda in 03.

• Incidence of violent crimes reduced from 2002.

• CIPE ranking for public sector institutions and performance improved from 2002 baseline.

• CIPE ranking for governance improved from 2002 baseline.

Country Level Outcomes/Targets

Performance Indicators

ANNEX I Page 3 of 4

• Increase access to interior facilities.

• Other minor multilateral/bilateral/ regional support programs.

• USAID planning support for HIV/AIDS awareness and prevention.

• PAHO supporting health strategy development.

• CDB planning investments in technical and vocational training.

• Sustain focus on primary care by accelerating TC implementation.

• Increase financing to improve coverage, access & quality of health care, especially for the poor.

• Increase policy, management and planning capacity of the MOE and PEUs.

• Support drive for universal primary and secondary education.

• Increase quality and equity of education through reforms.

IDB Strategy

• Health Sector Consolidation and Development TC.

• Study of Technical/ Vocational Education Systems (completed in 02).

• Basic Education, Access and Management Support (BEAMS) Phase I (Approved June 2002).

• Primary Education Improvement Loan (now completed).

Recent/Ongoing

Proposed

• Health Sector Program (2003).

• Nutrition Program (2003) £.

• BEAMS Phase II is planned for 2006 or after depending on progress with Phase I.

IDB Actions

• Health care system survey and database of PHC facilities w/info. on catchments population, staffing, equipment, and building condition completed.

• Epidemiological profile of pop. (indicators in last 5 years) completed.

• Study on Post Secondary Education completed (done).

• By program completion: % of primary/secondary schools benefiting from curriculum reform, quality enhancing expenditures, trained teachers; equitably distributed number of places in secondary schools increased.

• Education Sector Strategic Plan (2002-07) complete and approved by Parliament in 2002.

• PEUs streamlined and provides transition to BEAMS.

IDB Strategy/Program Implementation

• PRSP: Decrease mortality rates 02-05: infant 50 to 42, maternal 170 to 130 per 100K.

• Other health indicators to be defined during program identification in 2002/03.

PRSP targets by 2005: • increase trained teachers - primary 52% to 61% and secondary 57% to 64.5% .

• Student/trained teacher ratio reduced: primary 53:1 to 48:1, secondary 35:1 to 31:1.

• CXE pass: 52.5 to 62.

• Secondary repetition rate reduced 12.3 to 9.5.

•__% increase in # of students entering secondary in rural/ remote areas from 53% in 2000 to 75% in 04.

• HIPC: Health sector spending increased to 4.1% of GDP by 2005.

• HIPC target by 2005: Education sector spending increased to 9.1% of GDP.

• CIPE ranking for Building Human Resources improved from 2002 baseline.

Country Level Outcomes/Targets

Performance Indicators

• Increase financing, supplies, • Identify needs and • Health sector program delivery, support basic negotiated (03) personnel, nutrition and health procurement and program. management.

Implement Census Social • Bilateral resources • Improve baseline • Census 2002 completed • CIPE ranking for • Census 2002 and 2002; update HIES statistics: funding specific social social statistics to and quickly disseminated.

Analysis and Monitoring of HIES Preparation Improve and poverty map; sector surveys and improve policy TC (2001, Approved Poverty Outcomes and • HIES completed by 03 quality of strengthen social agencies (PAHO, making and PRSP 8/01).

Impact improved from & poverty map by 2004. baseline data sector data and UNDP, UNICEF, etc.). monitoring capacity.

2002 baseline. to implement, policy analysis; • Social Statistics, monitor and and monitor/revise/ Policy Analysis • WB TAC (2002) to • Refine targeting • PRSP: Monitor, evaluate/ • Social Statistics, Policy evaluate evaluate PRSP and Training provide some support mechanisms. revise by 2004/05.

Analysis and Training PRSP. every 3 years.

Program (2003). for BOS. Program negotiated (03).

Note: £ indicates proposed projects, which if implemented, the Bank would be taking the lead in reform efforts and investment in the sector or in specific subsectors. Attribution of program benefits should be relatively easy in these cases.

Health Sector: Improve coverage, access & quality of health care, especially for the poor.

• Increase policy, planning & management capacity @MOE. • Implement national strategy to reduce vaccinepreventable infectious and chronic diseases.

• Improve procurement systems and supplies.

• DFID focuses on secondary education in tandem with the WB and confinanced with the IDB the SectorWide Strategy.

• Undertake curriculum reform, teacher training; increased budget for teacher emoluments.

• WB -- Secondary Schools Reform Program (ends in 03).

• CIDA emphasizes basic education teacher training and distance education.

• Implement education strategy.

Education: Increase human capital base by increasing access, quality and equity of educational system.

Other Bilateral/ Multilateral: Strategy/Actions

• Promote universal access for primary and secondary education.

Government Strategy

Country Objectives

ANNEX I Page 4 of 4

ANNEX II Page 1 of 4

Table II.1. Loan Programs, 2002-05 1 Project Name

Expected Approval

Lending Scenario (US$ million) Base Low High

Objective

Unserved Areas Electrification Program 1 (GY-0065; Infrastructure)

Approved June 2002

27.4

27.4

27.4

Support Government’s poverty reduction strategy, further strengthen the legal, regulatory, and institutional framework, and provide the financial resources required for accelerated electricity sector development and extension of service to currently unserved consumers.

Basic Education, Access and Management Support Phase I 1 (GY-0063; Social)

Approved June 2002

30.0

30.0

30.0

Information Technology Program 2 (GY-0066; IT)

2002

21.3

21.3

21.3

Trade and Investment Facility Loan 2 (GY-####; Integration)

2003

2.0

2.0

2.0

Public Sector Financial Management Program 2 (GY-####; Public Sector)

2003

25.0

25.0

25.0

Public Sector Modernization Program 2 (GY-0053; Public Sector) Citizen Security and Justice Program (GY-####; Social) Nutrition Program 2 (GY-0068, Social)

2003

23.0

23.0

23.0

Strengthen the policy and institutional framework to support education reform; MOE’s ability to sustain improved literacy and numeracy attainment in students through the basic education cycle; and support Guyana’s push for universal secondary education.

Increase competitiveness and integration by use of ICT in the public and private sectors through: (i) support the unit that will implement the ICT strategy; (ii) strengthened E-Government in selected agencies such as the Deeds Registry, the Ministry of Public Works and Communications; (iii) contribute to human resource development; and (iv) support community outreach. The project would generate business and employment in sector.

Undertake institutional diagnostics, implement trade and investment agreements and integration initiatives, train technical staff and trade/ investment negotiators, install computer systems, promote development and diversification of exports, and attract investment.

Strengthen Fiscal, Financial and Fiduciary Management to improve Guyana’s accountability and ensure that HIPC/public resources are effectively used for poverty reduction, including integrated financial management systems (Budget, Treasury, Accounting), the procurement and audit functions, tax administration and sector regulations.

To enhance GOG’s capacity to implement its Public Sector Reform Strategy, improve service delivery and help the formulation of sound sector policies, technical standards and operational norms.

2003

15.0

15.0

15.0

The principal objectives of the program are to prevent and reduce violence, strengthen crime management capabilities, and improve the delivery of judicial services.

2003

5.0

5.0

5.0

Social Statistics and Policy Analysis 2 (GY-####, Social)

2003

5.0

5.0

5.0

Health Sector Program 2 (GY-####, Social)

2003

15.0

15.0

15.0

Address basic nutrition and health care by targeting infants, small children and pregnant and lactating women, and focus on nutrition education, promotion of breastfeeding and reduction of micronutrient deficiencies.

Strengthen the BOS and ministries in the collection of social statistics, to undertake surveys and coordinate with the University of Guyana for analysis required to monitor the PRSP. Develop capacity to analyze data for social policy analysis and decision-making among line ministries and university.

To improve sector policies and basic health services delivery.

Agriculture Support Services Program 2 (GY-0011; Prod. Infrastructure) Georgetown Solid Waste Management Program 2 (GY-0055; Environment) Georgetown-Timehri Road 2 (GY-####, Infrastructure) Deep Water Port Program 2 3 (GY-####, Infrastructure) New Amsterdam-Crabwood Creek-Mara Road 2 (GY-####; Infrastructure) Farm to Market Roads 2 (GY-####, Infrastructure) TOTAL FSO (Excl. approved) Guyana Power & Light 4 (GY-0058; Private Sector) TOTAL FINANCING

2003

20.0

--

20.0

Deepen agricultural reforms underlying increased farmer control in D&I, encourage agricultural diversification and initiate development and rehabilitation of D&I infrastructure.

2003

8.0

--

8.0

Improve institutional, technical and management capacity, and encourage private sector participation in the design, construction, financing, operation & maintenance of new solid waste disposal facility and services.

2004

25.0

--

25.0

To increase competitiveness by reducing vehicle transaction costs, congestion and improve traffic safety through expansion of the road network

2004

30.0

--

30.0

To improve efficiency and reduce excess costs estimated to exceed 30%, thereby improving competitiveness of Guyanese products in global markets.

2005

25.0

--

25.0

To increase competitiveness by reducing vehicle transaction costs through rehabilitation of road network, which has completed their economic life expectancy and will reduce both user costs and future reconstruction costs.

2005

25.0

--

25.0

To increase competitiveness by reducing vehicle transportation costs in productive rural areas, enhance economic opportunities and reduce poverty.

2002-05 2002

244.3 --

111.3 --

63.5

To finance a portion of GPL’s Development and Expansion Program.

2002-05

244.3

111.3

307.8

1 2

Approved program utilized carry-over FSO from 2000-2001 allocation.

Program to be financed out 2002-2003 and assumed future FSO allocations.

3 4

FSO operation with the potential for additional PRI or IIC financing.

Possible PRI (or IIC) financing

ANNEX II Page 2 of 4

Table II.2. Technical Cooperation Program (FSO), 2002-03 PROJECT No.

AMOUNT (US$ Millions)

PROJECT NAME

No number

Strengthening of Public Investment Systems

1.000

No number

Strengthening the Office of the Auditor General

0.6000

No number

Governance Strategy

0.150

COMMENTS To establish the capacity at the Ministry of Finance to discharge its responsibility for economic and financial management of investment programs, and improve project implementation capacity.

To undertake reorganization and institutional strengthening of the OAG under new legislation.

To identify areas for possible support.

Update of study will be used to initiate dialogue about reforms and determine further diagnostic needs.

Draft sector report will be used to design this TC program.

No number

Pension Study 2

TC 0101044

Strengthening Rural Financial Sector 1

0.500

No number

Establishment of a Credit Bureau1

0.500

To further facilitate financial intermediation.

Establishment of a Commercial Court (or Alternative Dispute Resolution Mechanism) 1

0.500

To separate commercial and civil courts, increase specialization and reduce backlog of cases that undermines business confidence.

No number

To be defined

TOTAL

3.250

1

Financing is through net income FSO, unless otherwise indicated. Alternative funding sources may trust funds, administrative resources, C&D action plan, CTINTRA, and/or co-financing by other donors, or the activities may subsume into a related loan or MIF operation. 2 Study is contingent.

Table II.3 Multilateral Investment Fund Program, 2002-03 PROJECT No.

PROJECT NAME Airport Security

TC-0011035 No number (MIF) No number (MIF) No number (MIF) No number (MIF) TOTAL

Strengthen Institutional Framework for the Electricity Sector Environmental Technology Promotion Eco-Tourism Development in Guyana (2002/03) Trade, Investment and Business Environment (2003) Remittance Mechanisms (2003)

AMOUNT US$ Millions

COMMENTS

.500

To support implementation of Guyana’s airport security strategy (a regional TC) and the Air Transport Sector Program.

.500

To strengthen the regulatory framework in the privatized electricity sector and to support private/public investments.

1.100

To establish a sustainable framework for the adoption of clean production and environmental management systems by SMEs.

.650

To be defined To be defined 2.750

This TC will focus on the establishment of a proper regulatory framework for eco-tourism development in Guyana, institutional strengthening, marketing and the facilitation of the private sector to play a more active role in eco tourism development.

Provide complementary financing for the Trade and Investment Facility Loan, particularly in the financing of program components that would more directly engage the private sector in these areas.

Reduce transactions costs, increase competition, channel investment opportunities for migrant capital and enhance poverty reduction.

ANNEX II Page 3 of 4 Table II. 4: Exposure and Credit-Worthiness Indicators

2000 Approvals Disbursements Active Loans New Lending Amortization Interest & Charges 1/ Active Loans New Lending: Net Cash Flow IDB Debt Outstanding IDB Exposure (18%) 2/ Total Debt Service/Exports G&NFS IDB Debt Service/Exports G&NFS (8%) Multilateral Debt Service/Total Debt Service (50%) IDB Debt Service/Total Debt Service (30%) Total Debt Stock Outstanding (US$ millions) 3/ Total Debt Outstanding (US$ m, net present value) 3/ As a ratio to G&NFS Exports (%) As a ratio to Revenue (%) (250% target) As a ratio to GDP (%)

0.9 54.1 54.1 0.0 11.3 5.1 5.1

2001

37.5 299.2

53.0 50.4 50.4 0.0 8.9 5.7 6.5 0.0 35.7 338.1

0.6 15.5 2.4 73.2 15.5

0.7 14.6 2.2 72.4 15.1

1,195 841 123.8 371.3 118.1

1,193 849 126.6 386.4 121.7

2002 2003 (US$ Millions) 78.7 118.0 43.4 60.4 36.0 36.9 7.5 23.6 9.6 10.4 6.7 7.9 6.6 6.6 1.3 1.8 27.1 42.1 371.9 421.9 (percent) 0.7 0.8 14.0 12.0 2.5 2.7 72.5 69.0 17.7 22.8 1,225 859 128.4 379.8 119.8

1,171 588 88.8 246.0 81.2

2004

2005

55.0 58.3 29.2 30.3 11.2 8.4 6.6 2.0 38.6 468.9

50.0 64.0 27.0 34.8 11.7 8.5 6.5 2.6 43.9 521.3

0.9 11.9 2.8 68.4 23.7

1.0 11.5 2.9 66.7 25.1

1,232 636 94.4 247.1 84.4

1,253 665 96.9 245.6 84.5

Notes: 1/ includes subscription charges; 2/ IDB exposure guidelines indicated in parenthesis; 3/ reflects the stock write-off of oHIPC and e-HIPC, with the e-HIPC completion point assumed in 2003.

ANNEX II Page 4 of 4

Table II.5a: Distribution of Pipeline and Assumed Financing

By IDB Priority Area and Year in Baseline Scenario IDB Priority Modernization of productive infrastructure (Competitiveness) Modernization of the public sector Social Programs/Poverty Integration Environment Total Approvals/Pipeline FSO Available/Carried Over FSO Allocation/Assumed Balance to carry over

Actual 2001

Total 173,700

33,000

2002

Pipeline 2003 2004

48,700

20,000

48,000 70,000 2,000 8,000 301,700

2005

55,000

50,000

55,000 (6,400) 55,600 (5,800)

50,000 (5,800) 55,600 (200)

48,000 20,000

30,000

53,000 111,600

78,700 58,600 62,200 42,100

58,600

40,000 2,000 8,000 118,000 42,100 69,500 (6,400)

Table II.5b: Distribution of Pipeline Resources

By Characteristic and Areas of Activities Priorities of Priorities of CP 2002 in Country Strategy 2002 relation to previous CP IDB Over-Arching Priorities Modernization of productive infrastructure (Competitiveness) Modernization of the public sector Social Programs/Poverty Integration Environment Total

Total

57.6%

Growth Oriented

Public Sector

New Programs 1/

57.6%

15.9%

17.0% 15.9%

23.2% 0.7% 2.7% 100.0%

Social Programs

0.7% 2.7% 60.9%

15.9%

Sustained Support 2/ 40.6%

15.9% 23.2%

8.3%

14.9%

23.2%

0.7% 2.7% 44.5%

55.5%

1/ Support in new areas or sub-sectors of activity (that were not in previous CP pipeline); 2/ Sustained support or providing continuity to a previous loan in the same area or sub-sector of activity.

ANNEX III Page 1 of 1

IDB Country and Sector Work Program Name/Year Governance Strategy 2002

Financial Sector Study 2002 Public Pension System Study 2003 (contingent)

Purpose Bridging Guyana’s political and other divisions is a key constraint for the country’s development. Government strategy since the March 2001 elections has been to intensify stakeholder dialogue and participation in the search for consensus solutions to development challenges. Further Bank support is required to develop a Governance Strategy, which will deepen the understanding of issues at stake, and identify programs to further support the consultative process and implementation of consensus solutions.

The purpose of the study is to identify how far Guyana has come with financial sector reforms and financial deepening, and related obstacles to private sector development. The study will identify policy dialogue, financial sector reforms, technical assistance and possible programs.

As a major contingent liability of the public sector, the study will undertake a actuarial review of NIS finances, investment practices and institutional context with a view to propose reforms for a more sustainable system. Undertaking this study is contingent upon an update of a 1993 study and further dialogue with GOG/IMF.

Notes: World Bank Non-financial Services Program2002-05: Strengthening the capacity of the authorities to deliver the PRSP reform agenda: Caribbean Technical Assistance Center (CARTAC), jointly funded by the IDB, IMF, UNDP and the Bank, and possible assistance for recently approved IDF for Capacity Building in Amerindian Affairs, and the new Dutch Trust Fund for PRSP Capacity Building.

Greater understanding of the necessary conditions for re-igniting and sustaining economic growth over the medium-term: Development Policy Review in FY03 aimed at providing analytical basis for refining the growth strategy within the PRSP. Deeper understanding of the causes and consequences of poverty: Poverty Assessment and a joint (with the government) participatory Midterm Assessment of the PRSP Implementation in FY04.Assessment of progress on governance: Governance Review in FY05, which will serve to update the core ESW: PER, CFAA and CPAR.

European Union: Transport Sector Study (2003): The ambitious civil works program identified in the PRSP give the Government an ideal opportunity to develop a sound sector-wide infrastructure development strategy. This strategy could be comprised of the following elements: (i) establishment of national infrastructure planning with qualified/better paid personnel to improve capacity for planning, programming and supervision and; (ii) institutional reform including clarification and expansion of the role of the private sector in the design, construction and maintenance of infrastructure projects under lump sum contracts; (iii) introduction of user charges; and (iv) the need to open the market for construction materials (such as quarry stones). The Bank will comment on the TOR.

USAID: Trade Sector Study (2002): In light of its importance to Guyana’s external viability, the Bank’s strategy should support trade and investment strategy of the PRSP, which include deepening/widening within CARICOM, preparing for greater reciprocity in trade relations with its major developed country partners, and ensuring an open, competitive and accommodative environment for trade and investment. More detailed sector analysis on trade and investment regime are required through a Trade/Investment Sector Study, which could help identify a Trade/Investment Facilitation Loan and MIF support if warranted.

ANNEX IV Page 1 of 1

Quantitative Goals of the Poverty Reduction Strategy 1997

1998

1999

2000

2001

2002

2003

--

--

35.1

35.1

34.9

34.0

33.1

82.1 14.2 55:1 35:1 70 105 65 56 50 57.3

83.2 13.3 55:1 36:1 79 109 68 57 51 37.2

83.4 13.0 54:1 36:1 86 110 60 56 50 46.9

83.4 12.9 54:1 37:1 87 110 62 55 49 46.7

83.5 12.6 53:1 36:1 87 107 65 56 49 51.4

84.6 12.3 53:1 35:1 88 105 68 57 52 52.5

85.7 11.2 52:1 34:1 90 102 70 60 55 55.5

86.9 10.1 50.1 33.1 91 100 72 62 58 58

88.2 9.5 48.2 31.5 93 100 74 64.5 61 62

Health and nutrition, sanitation Infant mortality rate (per 100,000) Maternal mortality rate (per 100,000) 1 Year olds immunized against measles 1 Year olds immunized against DPT % of population with access to health service % of population with access to adequate sanitation Number of reported cases of AIDS Reported cases of AIDS among women (15-45 cohort)

59 190 82.0 88.0 88.5 88.5 115 --

58 190 93.3 90.0 89.2 88.3 222 45

58 190 85.0 83.0 89.8 88.3 237 74

57 188 88.9 85.6 90.4 88.4 248 95

56 187 90.2 88.2 90.5 89.2 227 112

50 170 93.3 90.2 92.5 89.4 225 100

47 150 95.5 90.8 93.7 90.1 220 98

45 145 97.1 91.3 93.8 92.1 210 95

42 130 97.1 92 94.0 93.2 205 88

Water % of population with access to safe water % of population with access to treated water

90.0 34.6

92.0 49.3 57,96 0 230

92.0 53.3

94.1 59.1 71,50 0 263

96 61.8

97.5 62.3

73,400

75,000

78,000

230

93.2 56.2 68,20 0 250

95.0 60.5

200

90.0 42.7 50,40 0 210

275

278

280

1,730 359

7,684 98

6,544 570

22,735 1,750

3,500 2,015

4,750 5,200

6,200 10,200

6,000 12,000

6,200 15,500

210 97

220 105

250 110

310 122

330 140

345 150

4,149 74 3,186

3,901 75 3,200

3,725 69 3,010

3,350 62 2,815

----

----

5,100 770

1,624 765

5,315 820

5,350 915

---

---

Outcomes Population below the national poverty line (%) Enrollment and literacy % of primary school entrants reaching Grade 6 Repetition Rate (secondary school) Student/trained teacher ratio (primary) Student/trained teacher ratio (secondary) Gross nursery school enrollment Gross primary school enrollment Gross secondary school enrollment % Trained teachers in secondary schools % Trained teachers in primary schools Number of CXC passes Number of common entrance passes

Domestic households connected to water system a_/ Distribution network constructed (kilometers) a_/ Housing House lots distributed Land/House titles distributed Mortgage loans

45,000

Land Distribution Agricultural leases 98 114 143 Business leases 68 74 86 From I-PRSP: Crime and justice improvement Serious crime by selected offences 3,233 4,423 3.905 Murder 87 113 91 Burglary and breaking offences 2,215 3,337 2,823 Number of backlog case Small Business Number of loans (IPED) 1,624 3,404 5,057 Loans executed 655 755 706 Source: Ministries of Education, Health and Housing, Finance; Bureau of Statistics

65,000

2004

2005

32.2

31.4

ANNEX V Page 1 of 2 References

GoGY

“Banking System Statistical Abstract”, several issues, 2001.

GoGY

“Estimates of the Public Sector Current and Capital Revenue and Expenditures for the Year 2000”, Ministry of Finance, 2001.

GoGY

“Interim-Poverty Reduction Strategy Paper”, pp. 1-78, October 2000.

GoGY

“National Development Strategy for Guyana – Shared Development Through a Participatory Economy”, Chapters 1-42, Ministry of Finance, 1996.

GoGY

“Participatory Action Plan”, pp.1-12, June 2001.

GoGY

“Poverty Reduction Strategy Paper”, pp. 1-104, November 2001.

GoGY

“Statistical Bulletin”, Bureau of Statistics, several issues, 2001.

IDB

“A Diagnostic Evaluation of the Enabling Environment for Private Sector Investment in Guyana”, 1997.

IDB

“Building Consensus for Social and Economic Restructuring”, December 1994.

IDB

“Country Program Evaluation (CPE) Guyana: 1989-2001”, draft 5/29/2002.

IDB

“Guyana Country Paper”, 1998.

IDB

Various project reports, project profiles, mission aide memoires, consultant reports, and studies, 1998-2002.

IMF

“Decision Point Document for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative”, pp. 1-44, November 2000.

IMF

“Guyana. Support for the 2002 Article IV Consultation and Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility”, pp. 1-39, 2002.

IMF

“How Big is the Brain Drain?” Carrington, W. and E. Detraigiache, Working Paper WP/98/102, pp. 1-27, July 1999.

IMF

“Joint Staff Assessment of the Final Poverty Reduction Strategy Paper”, pp. 1-12, August 2002, prepared in collaboration with the IDB.

IMF

“Joint Staff Assessment of Interim Poverty Reduction Strategy Paper”, pp. 1-6, November 2000.

IMF

“Staff Report for the 2000 Article IV Consultation and Request for the Second Annual Arrangement Under the Poverty Reduction and Growth Facility”, pp. 1-85, November 2002.

UNDP

“Poverty Survey”, 1998.

USAID

“Proposals for an Investment Strategy”, 1997.

UN

“Human Development Report”, 1975-2002.

ANNEX V Page 2 of 2

WB

“Country Assistance Strategy”, Draft, April 2002.

WB

“Country Financial Accountability Assessment”, April 2002.

WB

“Country Procurement Assessment Report”, April 2002.

WB

“Foreign Investment Advisory Services” Back to Office Report, March 2002.

WB

“Household and Income Expenditure Survey”, 1993.

WB

“Growth is Good for the Poor, Dollar”, D. and A. Kraay, Working Paper, March 2002.

WB

“Public Expenditure Review”, 2000 and 2002.

WB

Various Project Profiles and Reports, Mission Reports, Consultant Reports and Studies, 1998-2001.